I’d bet there are currently two schools of thought out there. The first is we have not had two up days in a row yet, so we had better look for a down day on Wednesday. The other is the contrarian view that says the pattern is clear: no two-up days in a row so maybe we get one.
I do wish I had the one-day answer, but I don’t. What I can tell you is that for the first time in months, the McClellan Summation Index needs a mere positive 100 advancers minus decliners on the New York Stock Exchange to halt the decline. That is a positive.
What I can tell you is that today was the first day where 90% of the volume was on the upside. Recall at prior rallies I have complained about up volume. And breadth? There was very little to complain about there with breadth at positive 2,550 on the NYSE.
The new lows, which were quadruple digits for a week are now back to double digits. We didn’t even get to 100 new lows on the New York Stock Exchange today. Progress.
The Russell 2000 and the Transports, which I noted Monday, both failed to make lower lows, have now made five-day highs. Is that a big deal? In the big picture, no it isn’t. In the near term, yes, it is because it changes a pattern of lower highs.
The intermediate-term indicators are also worth noting. I said Monday that the 30-day moving average of the advance/decline line gets a little oversold Thursday and if not then, next Thursday. But some of the others we already know: The Hi-Lo Indicator is at zero or one, depending which day it is oversold; the Volume Indicator, which I showed here Monday morning and will be shown here again Wednesday evening, reached 38% (oversold) on Friday; and now I can add the 30-day moving average of the equity put/call ratio has finally reached a high level. Can this indicator get more extreme? Yes and it probably will, but for weeks it couldn’t even get to the December 2018 peak reading and now it has surpassed it.
I don’t know what Wednesday will bring. Quite frankly, I would love it if the market was just quiet, even if it was down. Because the Volatility Index needs to back off, but more than that a calm market, or one that didn’t rally more, would be a good digestion for now.
If we do keep rallying, when will the retest come? Let’s see if we can rally more first, but the process of making a bottom is often months in the making, not days.
Let’s talk about a chart like Apple (AAPL:Nasdaq) again. I drew in this support line in Monday morning’s Top Stocks and it needed to be quite thick, but we got the bounce.
Now let’s look at the shorter-term chart to see what possibly lies ahead. First there is the resistance just overhead at $250-$252, which are the highs from late last week. Recall above the Transports and the small caps have been able to surpass those highs already, so that’s the first big test for a stock like Apple. Then there is all that resistance that starts at $260. Now what if Apple gets up to that $255-$260 area and then pulls back, or what if it pulls back tomorrow? We’re keeping our eye on that gap down at $230. A gap fill that then rallies is good. One that fills and keeps going is not good.
At this point it is in the middle of nowhere but we can use it as a guide because so many other charts look similar so we know what we’re looking for.
A chart like Square (SQ) - Get Free Report has a gap fill just above at around $52, so that’s the first hurdle. But the real big one is up there at $60. Even if it fills that gap at $60 it also runs smack into a whole lot of resistance.
The McClellan Summation Index chart is below:
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The best thing I can see on the chart of Berkshire Hathaway (BRKB) is that if the gap up today doesn’t get filled, then it will have left an island down there between $160-$165 with Monday’s trading. Be careful if it can’t get up and over $180, though. There is no base and there is no bottom. So far it’s just a low. Crossing that line would make a difference.
For the time being, I think $56 is resistance on Intel (INTC:Nasdaq). But it did manage to cross the very steep blue downtrend line, so that’s a plus. I just think the likely pattern will now be trading between the upper $40s and the upper $50s, to build a base.