I'm Drawing the Line at What's Working in This Market
We’ll keep at it until the pattern changes. Imagine if we back off from that upper line, that line of resistance?
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Should I begin with the lines? I know you want an update on those lines. I must report I did see someone on CNBC comment on them so they are finally starting to get some play in the media.
Imagine if we back off from that upper line? Then for sure we’ll see folks drawing in that channel everywhere we turn. And that’s probably when it stops working and breaks.
We did scrape the underside of the upper line on Thursday. And while there is some room to rally back to the line again, I hope you can see that this line continues to be resistance.
But we did get more new highs on the NYSE for the first time since December. The Nasdaq, however, continues to lag — with new highs not only lagging the December reading but a few weeks ago.
The semis, using the SOX, did enjoy that oversold rally as they are now up 7% since the low a few days ago — basically since bouncing off that uptrend line. Long-time readers know I hate the simplicity of just drawing a line, but that’s what is working in this market so we’ll keep at it until that pattern changes.
Now with the SOX we can see it got to resistance just shy of 5000 and closed on the low. Filling that gap at 4800 is probably in the cards — I hope it’s in the cards. But that will be the real test for the SOX: Does it fill that gap and hold that uptrend line on the second trip down? I don’t have a strong view on that yet.
The other group that rallied, as it should have, was the Transports. They should test that resistance overhead around 16200. I don’t think they get through on the first trip up there, although that would only be a 5% rally from the low.
Then there are the banks. They have had a terrific two days but check this out: they filled the gap left from almost exactly a year ago when Silicon Valley Bank fell apart (blue line). Typically a gap fill is "enough" and I do have a measured target in the 103-105 area and then there is the black line resistance around 107.
I would not be surprised to see banks run out of steam and go back to milling around in the next few days. They do have a tendency to have a little run and then rest, sort of like an old person who needs to stop every so often!
I will finish by noting that the Daily Sentiment Index (DSI) for the S&P got to 82 on Thursday, as did the Nasdaq’s. The DSI for the VIX is 13. So I do believe that upper channel line will act as resistance especially since we are overbought.
