Chop Scenario Is Still With Us

The Market

I would have preferred it if the market had closed on its lows. Then, perhaps, folks would not have been so complacent about today's decline. But instead, there was no selling whatsoever anywhere on the charts. Were people buying? I cannot tell.

I keep wondering if the lack of selling was just an offset, given that this was the first day of the month, which is seasonally strong. But the market has not closed up on the first day of the month since November. Nor is there any pattern to the early part of the month; sometimes we have rallied the second day, and other times it has taken almost five trading days before we got a move upward.

If you want evidence that there was very little selling today, look no further than net volume on the Nasdaq. We did this exercise in this morning's letter. With the Nasdaq down 10 points Friday, net volume was -480 million shares. Today, with the index down 30 points, net volume was only -390 million shares. That is a positive, or at least it shows how little selling there was today vs. Friday.

What we need to watch now is the Nasdaq McClellan Summation Index using volume. It stopped going up today. Let me point out that it will take a net differential of +200 million shares to get it back on track, so that is very doable tomorrow.

Then there is sentiment. For the second time in three days, the International Securities Exchange equity call/put ratio was over 200% (just barely). But you might recall that in mid-January, we had four days in a row before the market rolled over. And of course everyone is so impressed that the market did not fall apart.

All in all, the jury is still out. On February 18, we closed at 1840 on the S&P 500. Here we are two weeks later and we're at 1845. That is the chop scenario I thought would be with us.

This 1840 area continues to be support, or a magnet, depends how you look at it. While I think we are likely to rally Tuesday -- or at least to have a rally attempt -- I am still not sure we are going anywhere special until we get a bit more oversold.

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New Ideas

I was asked to follow up on the chart of Citigroup (C) , which we looked at near the lows and said was due for a bounce. The stock bounced, but rather pathetically, as you can see. It is now retreating once again. I do not think it will break under $46 in the near term. But if it does, it would be hard to believe the stock market could hold up for much longer.

I was also asked to follow up on Pioneer Natural Resources (PXD) , which I liked a few weeks back. There is a measured target $210-$215 on the stock, which would essentially get it back near those twin peaks from last fall.

Today's Indicator

The 30-day moving average of the advance/decline line is a little overbought. If we could get a few down days in a row in the market (hah!), this would be oversold enough for another push upward. It will be back to maximum overbought in about two weeks.

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I was a fan of Peabody Energy (BTU) a while back. The stock sucked me in and spit me out. Is it bottoming now? It is trying to, but that downtrend line at $18.50 is the most I think it can do right now. Until it cracks over that line, the downtrend is still intact. And I do believe it can get to the line.

I liked that action in SodaStream (SODA:Nasdaq) today. I want to see some follow-through now, though. Without it, the stock looks likely to languish. This is the first higher low and a potential retest of that early February low. But retests require follow-through to be valid. I have drawn in on the chart the way I would expect it to trade as time goes on, if the action follows through.

I have been a fan of the Market Vectors Gold Miners ETF (GDX) since the start of the year, but I did not like the way it traded today. Gold made a higher high and GDX (the stocks) did not. You should take profits on a trading basis now, and look for a test of that uptrend line in the next few weeks. The only thing that would change my mind would be continued escalation in Ukraine that drives gold even higher. For now, stay in the "wait for a pullback" camp on this.