Will the Next Rally Be a Muleta for the Bulls?
If we do rally, how quickly will everyone get all bulled up? Here's why that's important, and a look at the statistics, sentiment, and bonds.
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The Market
Sure, we rallied, but there wasn’t much momentum behind it was there? Let’s talk, however, about the statistics.
Breadth was fair, not great. The new lows finally contracted on the New York Stock Exchange and its Hi-Lo Indicator got to .15. The math says it likely goes lower but at least we can finally call this indicator oversold.
Oil fell, but it’s still over $90. About a month ago, I noted the Daily Sentiment Index for gasoline had breached $90, which is why the chart of UGA, an exchange-traded fund for gasoline caught my eye today. Unlike oil itself, gasoline is lower than it was in late July. UGA is a terrible exchange-traded fund for a variety of reasons (heck, it only traded 28,000 shares today) but it’s worth watching, because if it can breach that $68 level that is a change considering it has already broken that uptrend line from May.
The big change today was the reversal in the bond fund TLT, as it closed up on the day after gapping down. The Daily Sentiment Index naturally ticked up to 13, but this is really starting to look like "enough" for now. We have some economic data out tomorrow and if the government shuts down this weekend that might be it for economic data until they reopen.
Then there are the utilities, which have absolutely collapsed this week. I don’t know why all of a sudden the selling accelerated on Tuesday, but I do know that volume is very extreme so I’d be surprised if the utilities fund XLU did not bounce next week.
Finally there is sentiment. The American Association of Individual Investor folks finally got bearish with bears at 40% and weighing in far more than the bulls which are now at 27.8%.
Even the National Association of Active Investment Managers Exposure ticked down to 43; it began the month at 61.
I have no sense whether this week was the low, but I still think we got stretched enough with bearishness high enough that we ought to rally. Remember if bonds, oil and the dollar can change their course, then stocks should be able to rally. The key is if we do rally, how fast does everyone get all bulled up since there are far too many in the year-end rally camp for my taste.
New Ideas
The Russell 2000 fund IWM just about filled that gap today. Resistance starts at $180 after that.
Only because I mentioned it last night, I want to revisit Snowflake SNOW because that was quite a reversal in the stock today. I’d like to see it fill that gap above near $158.
I have very few charts that look like International Paper IP, so I’m a bit suspect that this chart will work out but that is starting to look like a base. If it can’t get through $36, I’d fret or if it breaks back under $34.
Today’s Indicator
The 21-day moving average of the International Securities Exchange Commission call/put/ratio is now at .96. It ought to get to that .95 area next week.
Q&A/Reader’s Feedback
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Can Pfizer Make it to $34?; Pfizer PFE is oversold enough to rally, but it can’t seem to get up off the mat. If it can rally to $34, I’d consider that a victory.
The high yield bond fund HYG hasn’t done anything wrong, but if it bounces to fill that gap at $74.50, I’d look to sell it there.
JETS Oversold: We can add JETS to the list of stocks that are grossly oversold. I would eye that gap fill around $18.50 as a place to sell it.
Escape from InterActive: InterActive Corp. IAC seems oversold and at support, but that’s the best I can say about it. I’m not even sure where I’d sell it, but I’d worry if it can’t get up and over $52. You see that gap down has had no bounce at all, which typically means folks haven’t had a chance to get out.
A Gamble on Mexico: The iShares MSCI Mexico EWW ought to bounce, but if it fails to get over $60 it is going to start looking very toppy with lower highs in place since July.
