Looks Problematic to Me

 | Feb 01, 2012 | 6:00 AM EST
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On Tuesday I noted how many stocks have gone nowhere, or have slipped some on the downside, in the last week or so. In fact, the S&P 500 got to the 1315 area nearly two weeks ago, and it's still in the same area. With the exception of the Fed announcement last Wednesday, when the market rallied, the market has been either flat or down for the last eight trading days.

The bears will claim stocks are churning. The bulls will claim stocks are working off the overbought reading by going sideways. I believe both views are correct. It won't be until the S&P is able to crack the bottom of the channel that's still in place that we'll know whether it's digestion of the overbought reading or churning before a fall.

S&P 500 -- Daily

What I find even more fascinating is this obsession with the market being up 4% for January. Heck, someone ought to ask these folks if the statistic carries the same meaning given that the first two weeks are what saw a 4% rise -- since that's pretty much what has transpired. I also believe I heard someone note that, when January sees the market rising this much, February is often a dud.

As for the channel shown above, the good news for the bulls is that the upper line is now closer to 1340, while the lower line is clearly still at 1310, in my view. This is not an exact reading, but it seems to me the index is continuing to find support in that area each time it gets down there -- so, if you're looking for a crack, it seems that's what will be required to break.

Once again I will note that the window remains open for a corrective move, especially when we look at the numbers being dropped on the 10- and 30-day moving-averages of the advance-decline line in the next week.

Table -- 10/30-Day Moving Averages of the Advance-Decline Line

You might note there is exactly one red number to be replaced in this string of readings. Now take a gander at the two moving averages plotted together on a chart. They are on the verge of crossing -- to the downside.

10/30-Day Moving Averages of the Advance-Decline Line

I hesitate to be bearish, because I really do believe we're only talking about a pullback right now. But, with all this talk of golden crosses in the major averages, I would ask you this: Do you believe the shorter-term (10-day) moving average crossing through the longer-term (30-day) one is a signal to be acted upon? If so, wouldn't it be problematic in the short term if the 10-day crosses downward through the 30-day?

Granted, they might only kiss and not cross. However, you can see the numbers for yourself above, and track the advance-decline line Wednesday to see what happens. An up day would save it.

In the meantime, the selling dries up each time the market comes down, but it just don't seem to be able to rise afterward.


Overbought/Oversold Oscillator -- Nasdaq

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