Remember, Wild Swings Come at the Top

 | Feb 28, 2013 | 6:45 AM EST
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Oh, sure, two days ago I said the market should rally for one to three days. But I didn't think it would rally all the way back -- not at all. Yet that is exactly what happened, so let's look at the statistics.

Last Friday the S&P 500 was up 13 points, on Wednesday it rose 19 -- and the NYSE advance-decline line showed a net of +1530 both days. On its own, Wednesday's breadth was good, though it was lacking compared with last week -- and, even so, the McClellan Summation Index continues to head downward. Heck, it needs another decent up day just to flatten out, let alone turn back upward.

Then there's the number of stocks at new highs -- 150 on Wednesday. Now I cannot do a proper comparison yet, since the S&P hasn't even taken out the Monday of 1525. But suffice it to say that we are quite far away from a reading above 495, which is what the peak reading is thus far. That's not to mention the fact that the Hi-Lo indicator has most definitely rolled over.

Hi-Lo Indicator

Meanwhile, the S&P's action relative to the Russell was probably the most surprising indicator, in my view: The ratio ticked up. On a day where the market moves relentlessly higher, I fully expected the Russell to keep pace, but it did not.

S&P 500 vs. Russell 2000

For those who want to see the bullish aspect here, we haven't seen a higher high in the ratio yet. That would come above 1.68. For now, though, this ratio troughed on Feb. 19. Perhaps that is why the indicators lagged in Wednesday's action.

The best news was the action in the Dow Jones Transportation Average -- though I would point out that this index did not close at a higher high, even as the Dow Jones Industrial Average did. Just put that on the back burner for a few days and watch it, because if the transports cannot eke out a higher high, we'll have the first Dow Theory non-confirmation since this rally began. I saw a lot of excitement over the transports, and no one seemed to notice that the index had failed to make a higher high.

Dow Jones Transportation Average

I would remind folks that, a few weeks ago, we did a measured target on the transports, and the first one was right up in this area -- 5900 to 6000. There is one more higher target, around 6400, but for now let's just see how this one unfolds in the coming days.

In any event, this is the second time in two weeks that we've seen a round trip in the markets. Big swings in volatility are what we typically get at bottoms -- and at tops. I will let you decide what you think of what we're seeing now. I, for one, continue to think it remains part of a correction pattern.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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