Maybe, Someday, a Pullback

 | Feb 02, 2012 | 6:00 AM EST
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On this Groundhog Day, the chatter of the day should be Fed Chief Ben Bernanke's semi-annual testimony on Capitol Hill along with all the guesses for tomorrow's jobs number. However, we'll probably see the media spend all its time Facebooking. Maybe Bernanke ought to just "friend" the Congressmen and write his testimony on his wall to celebrate the initial public offering.

In the meantime, the market saved itself on the first day of the month and did not go down. As a result, the 10- and 30-day moving average lines of the advance-decline line are still apart -- they have not even kissed yet.

I also find the Investors Intelligence numbers fascinating, as they continue to show a lack of giddiness in the market. The bulls are still at 48.9%. Typically a sign of giddiness is when they reach the mid- to upper-50s.

In fact, have you noticed that we keep seeing these intraday reversals in the market? Last year we would often see a gap up, and then stocks just sat there grinding sideways or higher all day. Now we actually get intraday selloffs. Perhaps that's what has kept the giddiness out of the market.

The number of stocks making new highs continue to move up, having risen ever since the number "broke out" last week. So that, too, is on the bullish side of the ledger. In addition, of course, breadth continues to make new highs.

As for the channels, the indices are still in them. The Dow, that outdated index, tagged the underside of the broken line and retreated, so it remains outside the channel on the lower end. The Russell 2000 has now tagged its upper line. So unless it's going to simply ride the upper line, adding maybe a buck a day, it should retreat some now, too.

Russell 2000

The Nasdaq is also at an interesting juncture as it is at resistance. We can look at it on a one-year chart and see it is back to last spring's highs. That's fodder for the bears.


Now let's look at the Nasdaq on a longer-term basis. Note that a breakout above this level would take this index back to levels not seen since the dot-com boom went bust.


Since we all know it's unlike me to go without a complaint, let's look at the cumulative volume chart of the Nasdaq and note it is far away from making a higher high. I suppose that's what happens when people don't trade but machines do. Failure to make a new high on this indicator would be a negative divergence.

Nasdaq Cumulative Volume

Maybe someday we'll see a pullback. Maybe someday we'll see sentiment get giddy. Still, I did notice that Nasdaq's Arms Index (TRIN) was under 50 Wednesday -- so, thinking that was a low reading, I checked past charts.

I found the TRIN has seen six sub-50 readings since the Oct. 4 low. Four of them led to down days in Nasdaq the following day (with declines of anywhere between 8 and 27 points). Two of them were back-to-back, and the market was flat the day after. I believe this means the indices should pull back, but then I have thought so for a while, and I've been wrong in that view.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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