Figuring Out When We Go Down

I have said all week I thought we'd have an oversold rally and then head back down. My best estimate for heading back down has been sometime early next week. But we began our oversold rally on Monday instead of Tuesday or Wednesday, so perhaps my timing is off.

What I want to focus on are some of the statistics from Thursday's rally. And say some of the charts line up.

First of all, we saw absolutely no follow-through whatsoever for the value over growth rally. In fact, most value stocks were down. The good news is that they weren't down a lot; most were marginal. But that doesn't change that breadth was negative on a day the S&P 500 rallied 11 points.

I noted Thursday that breadth, despite being superb, was still not leading. I noted that the cumulative advance/decline line had not made a higher high. It still hasn't -- obviously with breadth negative. Now you can see the divergence on the chart.

In addition, I noted Thursday that the new highs were still far fewer than prior peak readings and the day's action didn't change that. There was barely an increase in the new highs.

Did you notice that the semis are now lagging? Nasdaq has made a new high but the PHLX Semiconductor Sector SOX has not. That means the ratio of the SOX to Nasdaq is still precarious.

With the employment number out on Friday morning, I thought we might revisit the bonds. You might recall we got down to that 1.50% target I had calculated for the yield on the 10-year note last week. We have since rebounded. In the near term, I think that 1.70% area is a lid.

So let's imagine that the employment number can't get through 1.70%, then interest rates are likely to back off again next week. Notice that rates and stocks have been moving in the same direction of late. Maybe that's how we get a retreat again in stocks.

Then there's the Volatility Index VIX.X . The Daily Sentiment Indicator (DSI) is still at 12, so it hasn't gotten to single digits yet. If it gets there on Friday, then it ups the likelihood for a pullback in stocks next week.

In terms of sentiment, the American Association of Individual Investors (AAII) did not get terribly bullish this week. There was barely any movement and there are still a few more bears than bulls. I view this as a positive. And, heck, if we managed to pull back early next week, it's possible the bulls drop more and the bears rise, getting us to some sort of extreme in sentiment.

After all, I keep staring at this chart of the 21-day moving average of the exchange-traded fund put/call ratio thinking another pullback would surely lift it off this extreme low.