Does the Rally in the Others Have Legs? And Other Important Questions.
Let's take a look at some important questions about the market.
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I’m going to answer a few questions today.
Yes, we finally got the rally in IWM, the small caps, on Friday, but did it change any of the breadth indicators? It did not.
Don’t get me wrong, breadth was terrific on Friday but it had been so weak on a relative basis, for nearly a month that one day does not make a market change. It will need more than a day. Which brings us to the next question: can it last for more than a day? It can.
The Overbought/Oversold Oscillator is still in oversold territory. Heck, you can see it barely moved last week—even Friday—with the rally. About a week ago I had noted that old adage about selling Rosh Hashona and buying Yom Kippur. It is clear it did not work for the S&P this year, but maybe it worked for IWM?
Did Friday’s rally change any of the charts? Aside from IWM, the Bank Index finally cracked over 115. You can see it on the daily chart but you can now see it on the weekly chart too.
If you want to get worked up over something regarding the banks, then look no further than the ratio of the Bank Index to the S&P. It ‘s pretty much flat for the year. So as good as the banks have been, they are not outperforming.
Will the bonds ever rally? I think they will. They did not rally on Friday; all they did was stop going down. So stocks are now ignoring bonds. Are the bonds right or are stocks right? I don’t know but I look at the chart of interest rates (yield on the 10 year) and all I see is resistance overhead. It’s here at 4.10%. It’s there at 4.20%.
I fussed a lot about bonds/interest rates back in July when that 4.20% area broke, so why wouldn’t I fuss when it revisits it? I would, however, note that the Daily Sentiment Index (DSI) for bonds is now 30. It is not extreme here but we all know if rates go to 4.20% that DSI is going to be a teenager in a hurry.
Speaking of Teenager DSI readings, the VIX is still at 15. And despite the move on Friday in stocks, the VIX barely budged and the DSI didn’t change. Which brings us to the final question of the day: does the rally in the ‘others’ have legs? For a few days it should but with sentiment where it is the runway is more like one at a domestic airport vs an international one. A little downside on Monday probably helps.
