A Rally, But Not a Convincing One

The Market

This is clearly not my kind of market. First of all, I hate markets that do not ebb and flow and ones that ramp without any regard for anything but the indexes. But more so, how many stocks in your pile made a higher high (higher than recent highs, that is)? I’ll bet not many.

I saw many stocks rally hard, but very few rallied hard enough to take out the recent highs. I’ll show you three examples. The SOX did not get over last week’s high. The Bank Index did not get over last week’s high, and the Transports have not made a higher high.

Even the ETF for biotechs, iShares Nasdaq Biotechnology (IBB), made a higher high so minimal that we’d need a NASA-powered microscope to see it.

Now I won’t argue that breadth was great, but in the big picture, it is still far lower than it was when the S&P 500 was last at 2100. The number of stocks making new highs on the NYSE tagged 130 on Oct. 23 and today there were 95 new highs. I grant you that another romping day upward should see more new highs, but why aren’t we there now?

The McClellan Summation Index continues upward and today’s rally got the cushion higher, so that’s not an issue. On an intermediate-term basis we will be back to an overbought condition around next week, so there is still room to go on the upside.

I also can add that the 10-day moving average of the put/call ratio still has not turned upward, nor has the ISE’s 21-day moving average turned downward. These are indicators I expect will roll over in the next week, but for now they are on the side of the bulls.

The most positive aspect of the rally today was the small caps, as they finally got moving. But here again, they are still lower than they were at the September peak. In addition, the iShares Russell 2000 (IWM) finds itself sitting right at a downtrend line. If it can get up and over that, then I will give it a lot of credit. However, I am more inclined to think it stalls out first.

Finally, Twitter (TWTR) has a relatively new feature in that I can now conduct my own poll. Today I asked folks to vote if they thought the S&P 500 would close the year over or under 2100. Thus I’m giving a two-month window, and we're sitting right at the level. To me, that means if you vote yes, you think we rally into year-end. If vote no, then you obviously don’t. The poll is open until tomorrow morning. If you’d like to vote, I encourage you to do so here

My initial observation is that when there were 100 voters we saw the spilt about 65 bulls to 35 bears. At each ensuing 100-voter interval, the spread barely changed. As of this writing there are about 600 votes in and the spread is still about the same. My takeaway on that is no matter how many votes I get, folks clearly are leaning toward a year-end rally.

Please go take the poll and help me out. Thanks!

New Ideas

I want to show the chart of Deckers (DECK) again because they tried to take it down in the morning and were unable to fill the gap, thus keeping that island intact for now.

Today’s Indicator

The 30-day moving average of the advance/decline line should head higher this week.

Q&A

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Take-Two Interactive Software (TTWO) has a decent chart with a measured target near $36. As long as it stays over $32 it should be OK to own. But I should note that these high bases are not charts at which I tend to excel.

We looked at Hertz (HTZ) with a positive eye not long ago, and Barron’s had a bullish article on Avis (CAR) this weekend, so the question was if this was positive as well. It reported earnings after the bell Monday and gave it all up. If Avis can hold $48, then it’s possible it can recover, but be aware of a possible island reversal now.

Amgen (AMGN) has a measured target of $175 to $180, which would take it back to the old highs, but I can’t help and stare at the resistance all the way up. As long as it stays over $155, it should work its way up there.