Market Rallies, but Steam Is Running Out
The “others” are no longer oversold.
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Just to recap the last week in the market: Last Monday, the S&P closed at 7,541. This Monday, the S&P closed at 7,549. So you see? Not much occurred over the last week!
I still do not think we had what I would term as full-blown panic. I do think we had a mini selling climax, especially in technology. As I explained after Thursday’s shellacking in the market, we had the QQQs trading over 120 million shares and the (VIX) get jumpy and the put/call ratio over 1.0. And we were set up to get short-term oversold early this week.
Monday’s rally reflected the oversold-ness. The stocks that were down, the stocks that got hit the hardest last week, are the ones that rallied the most. That is typical in this situation. I suppose the question is if we can trust it to have some follow through.
Typically after a day like Monday we see some choppiness and give back as stocks digest the rally. Recall that Bob Prechter says all rallies begin with short covering so the fact that Monday felt like a giant round of shorts covering doesn’t make the rally a bad one. The issue is always if there is any follow through buying.
The McClellan Summation Index continues to lumber upward. And at least, unlike last Wednesday’s rally, the put/call ratio did not sink like a stone. The reading was .85 which is fairly neutral. Last week it was .80 but the equity portion was .44 last Wednesday. Perhaps folks are a bit less enthusiastic after Thursday’s decline.
What I do want to point out is that, while not yet overbought, some of my indicators on the “others” are no longer oversold. You can see the 30-day moving average of the advance/decline line is now over the zero line. It hasn’t been over the zero line since mid August. The math says it has a few more upside days, then a pullback and one more push upward. I expect this will get back to overbought sometime around Thanksgiving.
The Volume Indicator is now at 51%. It gets overbought in the mid- to upper-50s. Here, too, I would expect it to falter later this week and then make another try upward. But the point is that while not yet overbought, it is no longer oversold.
Thus, while Monday was not an either/or day in the market unless we count (NVDA) versus everything else, these metrics say that the rally the others have enjoyed these last six weeks should run out of steam around the end of November.
Much will depend on how we get there (i.e., do we dip first and rally again? Or do we just keep going?) but that’s what I will be watching in the next few weeks. If tech rallies, will it once again do so at the expense of the others?
