We Finally Got that Broad-Based Rally. So, What's Next?
Breadth was much stronger today, and the others got to rally. But, where do we go from here?
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That’s what a rally in the others looks like. Oh, I know the mega caps were still the index movers and did better, but at least the others were able to play along and show us that the oversold condition that developed as we headed into July mattered.
Breadth was good, but not great. The number of stocks making new highs was still rather pathetic. Heck, Nasdaq couldn’t even surpass the reading from a few days ago, although it was a close call.
I cannot say when we will be overbought using the Overbought/Oversold Oscillator because my oscillator is based on breadth. And when breadth is mixed, as it has been over the last two weeks, it makes it difficult to pinpoint when the others will be overbought. I can however note that it appears it will be a little bit overbought Friday.
The intermediate term, having just gotten oversold is not overbought. Remember, lately this has had nothing to do with the big cap indexes and everything to do with the others. You can see the recent oversold condition in the 30 day moving average of the advance/decline line. It has pushed up over the zero line but the math says it is not yet overbought.
Yet the S&P has been up for seven straight days and ten of the last eleven trading days. On a price basis, that makes it overbought. Nasdaq too. If we do some math on the S&P we discover that the pattern that developed from March through May measures into the 5650 area.
Now let’s move on to the VIX. Sure it was up on Wednesday. Many will fuss over that. I have seen the VIX up and the S&P up and it matters and I have seen where it doesn’t. But my observation is that the VIX hasn’t made a lower low since the S&P broke out at the end of May. I don’t know what that means since I am no VIX expert but I think it is noteworthy that there is a series of higher lows which would imply we have some volatility heading our way.
The Daily Sentiment Index (DSI) for the VIX is still sitting at 10. My guess is that if the VIX moves up more we’ll have missed the chance to get it to single digits. The DSI for the S&P and Nasdaq reside at 86. So if the CPI gives the market another push, it is within striking distance of getting over 90, although I think it would have to be one heckuva rally to get this over 90 in a day.
Let me finish with the fact that interest rates barely budged on Wednesday but the Utes finally got a push up. I warmed back up to them about 3-4 weeks ago and continue to like them. To prove themselves they need to cross that downtrend line. I still believe I am early and they will not run away on the upside but they ought to keep improving.
