Thursday was a two-tiered sort of day in the market: There was precious little selling in the Dow stocks and a handful of other big-cap names, but plenty of unloading elsewhere. Statistically, however, not much changed, and the numbers are keeping me in the camp calling for further correction.
On an intermediate-term basis, the market is still overbought. The McClellan Summation Index has now rolled over for the Nadsaq as well as for the NYSE. About the only good news on this indicator is that, if the recent bearish action continues for another session or two, the indices will become very oversold on a short-term basis. At present, in order for the slide to halt in the NYSE McClellan Summation Index, the advance-decline line would need to reach plus 2700, and plus 4000 would reflect a very oversold market.
While anything is possible, it is hard to imagine that we'll get two more days of such selling. I say this because the Nasdaq closed at 3131 -- not terribly far away from its rising 50-day moving average, which is currently at 3105. I believe that level will provide very short-term support the first time down.
Speaking of the Nasdaq, the number of stocks making new lows finally expanded on the index. It's nothing dire, but the amount has now doubled from a week ago.
Meanwhile, it's been a few weeks since I've harped about Europe -- so, with the Italian general election set for this weekend, I thought we would revisit the chart of Italy's FTSE MIB. The benchmark index ought to find some support in that 15,000-to-15,500 area you can see on the chart, where the lines begin to intersect. In addition, that top measures to around 15,000. Should the price reach that area, I'll look for an oversold bounce.
Turning to currencies, I am still a fan of the U.S. dollar. However, the dollar index has run quite far and has a little bit of resistance up at current levels, from a previous high just over 81.5, so a pullback or a rest shouldn't surprise any of us. I would love to see a pullback to the 81-ish level. The base eventually measures to between 82.50 and 83.
If the dollar backs off somewhat, commodities should enjoy some sort of an oversold rebound after the pounding they took this week. That said, I thought gold would have an oversold bounce Thursday, and it simply went sideways instead. I still think it should bounce from current levels; in fact, I'll be shocked if the dollar backs off and gold doesn't rally.
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