An Intriguing Juncture for the Market

 | Jan 04, 2013 | 6:15 AM EST  | Comments
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In the middle of the session Thursday, sentiment had gotten rather extreme, with the put-call ratio sinking into the 60% level -- an area not seen since late November, just before the market headed south again. But there is nothing like a midday decline from the highs to get folks to pull in their horns, and by the end of the day the put-call ratio was at a much more neutral reading of 84%.

I still expect the 30-day moving average of the equity put-call ratio to turn up sometime in the next week or so, but it has not yet done so.

Put-Call Ratio

Away from that, I was asked to follow up on a couple of patterns I wrote about last month. At the time I pointed out two head-and-shoulders patterns -- a smaller bottom formation in the S&P 500, and a larger top in the Nasdaq chart. In a different piece (scroll down for my contribution), I said the right shoulder for the Nasdaq top would come in somewhere in the 3100. That is essentially where the index currently is, as it closed Thursday at 3100 on the nose.

The pattern is still present, but another reader said they saw an island left behind when the Nasdaq gapped up Jan. 2. I suppose that is an island, but what caught my eye was how similar the gap-up looked -- in mirror-image form -- to the gap-down in April. In both cases, after those big moves, the market just sat there in the following session.

Nadsaq

With the employment number due out Friday morning, in my view it's a coin toss as to whether the indices will gap up or down -- or do nothing. But if it is a gap down, that would be a pretty amazing mirror image, wouldn't it? The move may not be steep enough to be seen on the chart, but it certainly would make for an interesting development.

Elsewhere, the move in gold found my inbox full of questions. When we last checked in here, I had a downside target of around $1,625 per ounce. While I was on break two weeks ago, gold traded down to $1,638, so it certainly got into the neighborhood of that target. I'd love to see a quick trip down that undercuts the lows of two weeks ago, followed by a sharp rebound. I don't know if we'll get it, but the hate for gold is on the rise and the love for it has surely waned.

Gold

Then there are interest rates on Treasuries. At this point, the yield on the 10-year note is right back to the top of the range. This time the pattern is a bit different, as it is actually a rectangle. If it truly breaks out, I will not fight it -- but my guess is it will try to to get through and will proceed to come right back into the trading range it had been in. If I am wrong and it does break out, the measured target will be between 2.10% and 2.20%.

10-Year U.S. Treasury Note

The one thing we've got to admit is that the major averages are all at rather interesting levels, just in time for the arrival of the employment report.


 

Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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