I Think We’re Going to See Volatility Pick Up Again Later This Week
The Market
It was an interesting day in the market. Many of the recent high fliers did not participate and many of those who sat it out recently did. So it was group rotation.
Breadth was fine and kept the move going. It keeps the McClellan Summation Index rising but more than that it gives it a cushion once again. This cushion was lost last week when we had three down days but now we’re back to the point where we need a net differential of -1,700 advancers minus decliners to halt the rise again (we were at -300 issues three days ago).
Let me stop and make a point about this for a minute. We came into last week’s correction with this indicator needing a net differential of -3,500 issues to halt the rise so when we pulled back we got to the brink but we rallied and were saved. Should we correct in the latter part of this week (my expectation is that we will) the cushion starts from a lower level which means the next dip could finally halt the rise in this indicator. The chart is shown below.
I point this out because the number of stocks making new highs is not expanding. On January 31 there were 132 new highs and today we had 94. Heck, we had 94 new highs on the NYSE last Tuesday! I would feel much better if we had seen that over 150 by now.
Then there is sentiment. The put/call ratio for ETFs chimed in under 100%. This can be iffy in terms of how many days it needs to be under 100% before it matters but it was under 100% on February 6 and February 7 the market fell handily. Also the total put/call ratio was 78% which is the lowest since it was 75% on January 25, which also saw the next day lose almost one percent.
The Daily Sentiment Index is now at 78 for the S&P. We have seen this indicator hard at work lately. Yesterday’s reading of 80 on the Dollar and 10 on the Euro caused a decline in the buck and rally in the Euro. For Gold once it tagged 80 Gold began correcting. Same with bonds. Typically I find over 80 to be a warning and over 90 to be danger. One more up day for the S&P could push this over 80.
Now let me give you the good news! As noted, breadth remains strong. Weak breadth is what causes markets to roll over and we haven’t seen that yet. The Investors Intelligence bulls are now at 49.5% so they are inching closer to 50% but they aren’t there yet. Readings over 60% are bearish.
Many will fuss over the 200-day moving average. My view is that the moving average is currently flat (as opposed to rising or falling) and therefore it’s just a level to be aware of, not one to make a market decision on. We can just as easily see the market go over it as fall back under it. I think we’re going to see the volatility pick up again later this week.
New Ideas
We have looked at Altria (MO) several times of late, most recently last week where I drew in the potential for a head and shoulders bottom. If this chart can get through $50 it completes what is almost a textbook example of a head and shoulders bottom.
Today’s Indicator
The McClellan Summation Index is discussed in full above.
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Can we possibly like Kellogg undefined after that big disappointment last week? Well I’ll say this: it broke and recaptured the breakdown so you know you’re wrong if it goes back under $54-$55. There is no base to speak of and my guess is $58-$59 is a decent resistance spot the first time up. What would be great is if it rallied to $59-ish and pulled back because at least there would be a pattern to give confidence.
I have such a hard time liking OIH, an etf to be long Oil service stocks. If it can get over $17.50-$17.75 I’d feel better about it. Typically I’d be okay picking at the lows but it’s been four weeks and it hasn’t been able to get over it. In this case I’d rather chase it because back under $16 and it’s gonna retest that $14-$15 area I think.
I think these PBMs (Pharmacy Benefit Managers) could be under pressure this year as drug pricing seems to fall on their shoulders. That having been said, CVS (CVS) would need to get over $70 to convince me the buying today is more than short covering. I think it can get there, but can it get over there is what I question.
