One Pathetic Rally

 | Feb 05, 2014 | 6:45 AM EST
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I was cheering and rooting for the put-call ratio Tuesday -- because, for the first time since October, it rose above 100% and stayed there all day. In the end, it closed at 99%. So this indicator is in better shape, but it still isn't too great at the moment.

The best thing the S&P 500 could do would be heading down again Wednesday, and then hitting a lower low -- meaning under 1739 -- accompanied by fewer than 131 stocks making new lows. If that occurred, we'd have some short-term positive divergences to go along with the oversold condition. Let's see if it can happen.

If you've had any doubts that 2014 is not 2013, then just look at Tuesday's pathetic rally, which was certainly lacking in many ways. Last year the market would have zoomed upward and gotten everyone excited, but this time it meandered higher and folks were buying puts for the first time in months.

Meanwhile, for one telling anecdote, the other day I overheard two gentlemen chatting about the markets at the gym. One fellow said something like, "I read in The Wall Street Journal that we should stay away from these emerging-company markets." After I had a short chuckle to myself on that creative terminology, I thought that this might be the equivalent of my mother calling me about emerging markets. When person who is that "out of the know" makes such a comment, it's probably time to take a look at a potentially decent bounce in it.

The chart of iShares MSCI Emerging Markets Index (EEM) shows the top of the pattern at $43 and the neckline of the funky head-and-shoulders top at $40. If we subtract the $3 difference from $40, we get a $37 target -- and look at that: Monday's low was 37. Isn't it possible that was a short-term capitulatory low?

If EEM can get above $38.50, then the little bottom will measure right back to the $40 area -- which, as anyone can see, is a resistance level.

Wednesday's trading will be dominated in the early going by the ADP employment report, which will then lead to a bunch of fussing over Friday's jobs number. At least we've finally got some movement in the market and folks are behaving in not nearly so complacent a manner as they had done just last week. In my view, Monday's action and Tuesday's pathetic rebound went a long way toward removing much of that complacent sentiment.

I don't believe the correction is over yet, but the market is closer now than it was a week ago.



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