Dusting Off That Sell Button

 | Feb 21, 2013 | 6:00 AM EST
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So, as it turns out, the "sell button" has not gone the way of the buggy whip -- folks finally found it and used it. Was it the Federal Reserve minutes? Was it the poor housing starts? What about the collapse in commodities? It was probably a little of each.

Let's review the same statistics I have been harping on for weeks now, just so you know where they stand -- and, therefore, where I stand. Since I want to be fair, though, let's go over the bullish numbers first.

The Arms Index (TRIN) climbed to 3 during Wednesday's decline, and that's despite a session with 90% downside volume. When these two coincide, it often means we can see a short-term rally within in the following three trading days.

Also on that side of the ledger, and another reason we could see some sort of a rally in the next day or so: The put-call ratio surged to 114%. We haven't seen such a reading since November.

But let's get back to the intermediate-term indicators, which have been struggling or rolling over in recent weeks. As I've noted several times recently, the McClellan Summation Index has no longer been able to join the upside party -- and Wednesday's action rolled it right over. In order for it to stop falling, now, it will now need the NYSE to show a net differential of plus 1700 in advancers minus decliners. That would mean a total reversal of Wednesday's downside action. The market achieved such a rebound a few weeks ago, but my sense is it won't happen again at this point.

Then there is the 30-day moving average of the advance-decline line. It's overbought, as is the Oscillator, and both from lower highs.

As I noted last week, the number of stocks making new lows on the NYSE were inching up, and there were some recognizable names on the list. That list grew to 40 new lows Wednesday, with yet more well-known stocks. This reading is the highest we've seen since November.

Rather than discuss the absolute number, take a look at the trend, using the 10-day moving average of new lows. It is on the rise.

Number of Stocks at New Lows -- NYSE

While the put-call ratio was high for the session, the moving averages are all turning upward, which is a bearish indication. Then there is the ratio of the S&P 500 to the Russell 2000, which dipped under 1.65 and then recaptured that level. This kind of action tends to occur at market highs.

S&P 500 vs. Russell 2000

Finally there are the uptrend lines, which I have discussed so often that you've probably tuned me out already. The KBW Bank Index broke its line, for one, and no one seemed to notice this. While the first break of an uptrend line doesn't always lead to a total reversal, these have been the market leaders -- so if their uptrends are in jeopardy then the same likely goes for the overall market.

KBW Bank Index

Speaking of the overall market, the S&P had only a minute break of its uptrend line -- it might not even look like a break if I used a thicker pencil. However, to me the signs are all there in the indicators: Whether it's a thick or a thin pencil, stocks should finally undergo a pullback.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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