This Is Not Convincing

 | Jan 19, 2012 | 6:36 AM EST
  • Comment
  • Print Print
  • Print

I got a lot of questions about the "breakout" Wednesday, so let me begin with the Dow -- which has not broken out. That index is still dancing around 12500. The S&P 500, for its part, has resistance in this entire 1300 area. A true breakout would come around 1320.

What did break out was the Russell2000, as it rose above 770 with ease. However, on a very short-term basis, you can see the small channel I've spied on the chart. That shows the index is at some resistance now.

Russell 2000

Last week I showed the ratio of the S&P to the Russell 2000, which had not yet broken down. It is still struggling to do so, but at least action such as we saw Wednesday, with the small-caps outperforming the big-caps, helps push the ratio in that direction. I will continue to monitor this and keep you posted on the situation.

Ratio of S&P 500 to Russell 2000

Of course, the complainer in me will note that, on the NYSE, there were even fewer stocks making new highs Wednesday than there were Tuesday. The same went for the Nasdaq -- and, for this index, it was not a modest higher high but, rather, well over a 1% move.

I took a look at many of the charts, and it seems the culprits are the cyclicals. Many of those stocks that rose constantly when the dollar declined vs. the euro are struggling to break out from their November highs. So, if the euro can get out of the channel I drew in last week, then maybe new highs can increase and I can stop complaining! A move above $1.29 would surpass last week's minor spike high and clear the upper band of the channel.

Euro-Dollar Pairing

It is my view that, if the euro can break out of this channel, which I believe will happen, then there should be another round of short-covering in the euro.

As for a follow-up on natural gas, which continues to decline on a daily basis, I would note this: For the first time in several weeks, the selling finally subsided in many stocks out of this space. Of course, I just know that, as soon as this Midwest frigid cold migrates to New York City, and all those nat gas traders have to wear a coat to work, we'll see an oversold pop in the commodity.

In the meantime, it has been fascinating to watch the ratio of coal to natural gas over the last five years. The ratio had been moving in favor of coal since early 2010 -- and, in my view, the ratio is now quite stretched. I have circled two other times when we saw spikes up that yielded to declines. In my view, it is now trying to do so again.

Ratio of Coal to Natural Gas

Perhaps, with all those coal stocks warning of poor earnings, we should gather that some utilities have started to move toward cheaper natural gas? Nah -- I must be dreaming!


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

Columnist Conversations

Foot Locker's (FL) less than expected quarterly earnings set off a round of selling the entire athletic appare...
View Chart »  View in New Window » Gold has met the first upside target off the last setup zon...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.