The market has been like a roller coaster of late, and several readers have inquired about what the action might mean. Well, these sorts of moves tend to indicate indecision, which means the market tends to be at or near an inflection point. Heck, in this market that probably just means it'll proceed sideways!
If you did want to assign a name to the pattern that we've seen, the best I can come up with is on a 30-minute chart of the S&P 500 -- which looks like a broadening top. This is a pattern that features a series of three higher highs and two lower lows, which together form a megaphone formation. (Please keep in mind, of course, that the 30-minute chart is far different from a daily.)
The broadening-top pattern is not complete until the price breaks the lower line. So, before you decide that this is the end of the world, understand that the S&P 500 would have to fall nearly 20 points before the lower line of the megaphone is broken.
For me, the most interesting aspect of the recent action is that we're seeing a giant, outsized move at the open each day, and then the indices just churn throughout the entire session. We saw this Friday on the upside, and then Monday on the downside -- and again Tuesday on the upside. It's as if the market only wants to move while European markets are open, and then decides to just sit there.
As for the internal statistics of the market's rally, in the same way we were able to look at some short-term positives from Monday's decline, we can cite some negatives from Tuesday's rally.
The number of stocks making new highs, 250, fell far short of Friday's 419. Breadth was lower, as well, which means the McClellan Summation Index failed to turn around and rise. I didn't see anyone complaining about the Russell 2000, but this index didn't manage to eke out a higher high, either.
There was one big positive, though: volume on the Nasdaq. The figure, at 2.1 billion shares, came in above what we saw on the first trading day of the year. The only other day when it volume higher was last Thursday, when the market was flat on the day.
Not only was total volume up, but net volume (up volume minus down volume) had its best reading since Jan. 2, as well. It hasn't quite turned the Nasdaq McClellan Summation Index back up, but one more positive volume day would get it back on track.
Maybe it's because Apple (AAPL) -- which has not gotten an invite to the rally party this year -- seems to have made a W-shaped bottom of some kind. Wouldn't it be something if Apple rallied and the rest of the market went down?
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