Here's What Caught My Eye on Monday's Rally

Note to readers: I am going to be doing a presentation for the Palm Beach Traders on Tuesday evening at 7 p.m. EST and you are welcome to attend via Zoom. The link is herebut you must register in advance.

Considering how crummy the statistics were, there was actually a lot going on under the hood during Monday's market.

Yes, breadth was poor. Very poor, in fact. Net breadth was +270 with the S&P 500 up 30. The last time the S&P was up just shy of 30 points two weeks ago net breadth was +1400. So if you are thinking the rally was highly concentrated in the big bap index movers, then you are correct.

But the transports and utilities rallied. So did defensive stocks. And that caught my eye. You might shrug off the rally in foods because of the Twinkie deal (although I'm not sure why, but it does tend to happen like that) but the soaps and cigarette stocks rallied as well.

This catches my eye, because the utes have just had four-straight days of rallying, which is the most since April. I know you, might think, "Big deal, all they have done is rally back to resistance." Yet, consider that many of the stocks most clobbered in the August decline were these defensive, dividend-paying stocks.

For example, take a look at the chart of the staples exchange-traded fund (XLP) . The chart has gone nowhere for a year, but focus in on the action since we got intermediate-term overbought in mid-July and early August. That is pretty much straight down. And now it bounced off that line that has been in place nearly a year. And it's a flat line (flat lines are harder to break than steep lines).

I am so fascinated by this, because the bonds were down. Again. If you ask me which leads, it would be like asking which comes first the chicken or the egg. I am simply focused on the fact that staples and utilities have begun to hold and rally, while interest rates are simply milling around at resistance. Are bonds smarter than stocks? Many think so. I don't really know.

But I do know the dollar backed off, as well. Here, too, you can see the rise in the buck since the market got overbought in mid-July. As an aside the Daily Sentiment Indicator for the Dollar Index tagged 90 on Friday.

I also know that oil itself didn't back off much, but the stocks certainly did. The energy fund (XLE) made a higher-high and then turned south. This 90 level is a big one and if it doesn't hold, there may be a lot of bulls caught there. I have been wrong on energy for three weeks now (thinking that it would pull back) but I still think it is in desperate need of a pullback/decline.

If we can get some downside this week, we'd get the short-term oscillators back to an oversold condition. But I am more interested in this group rotation that is taking place.