Now That Tax Day Has Arrived, Are We in for a Rally?

 | Apr 18, 2017 | 6:00 AM EDT
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Tax Day is here!

I have seen so many statistics that tell us how the market typically sags in the two weeks prior to Tax Day and rallies in the days afterward. I wonder why we didn't see these statistics in late March from these same folks? Do they only highlight statistics that show when the market rallies?

And yes, sentiment shifted on Monday. Of course it did, since there is nothing like price to change sentiment. But for me it was the final 90 minutes of trading that seemed to get folks excited as the market rallied that final ramp up into the close. It's as though folks forgot that last week we were supposed to fear the war talk with North Korea. Nothing happened over the weekend, so it's all good now. Wait, do wars only start on weekends?

The easiest way for me to show you the change in sentiment is the equity put/call ratio. As I noted here yesterday, it shot up on Friday to 98%. Monday it sank to 63%. To me, 63% is pretty neutral overall, but it does show the fear that was evident Friday seems to have dissipated.

As for the rally itself, it was pretty much index-based. For example, breadth on the NYSE lost just over 1,200 issues on Friday. Monday's gain was around +1,450, so the net gain was a mere +250 issues. And I know overall volume was terrible, but the 16-point decline in the S&P on Friday gave us a net negative in volume (up volume minus down volume) of -2.2 billion shares. Monday's rally saw a gain of +1.6 billion, so overall, that aspect of breadth isn't terrific.

But it was Nasdaq that really surprised me -- after all, that's where the oscillator was so oversold. Total volume for Nasdaq was not even 1.4 billion shares and the number of stocks making new lows outpaced the number of new highs. I can see the latter occurring when we're coming off a significant low in the market, but I think we can all agree that Friday was not a significant low; we were a few percentage points off the high.

Be that as it may, the oscillator will not be overbought until Friday at the earliest. Longtime readers know we look at the numbers we are dropping off the 10-day moving average of the net of the advance/decline line to see when we'll be back to an overbought condition. When we stop dropping red numbers, we are back to overbought. The numbers we're dropping for Nasdaq in the next several days are as follows:

You can also see the 30-day moving average is oversold for the next few days as well, based on the numbers the indicator is dropping. As a reminder, this doesn't mean the market has to rally every day, nor does it mean it can't fall before it gets overbought again, but since we saw a change in sentiment on Monday I expect, if we don't come down much between now and Friday, by Friday folks will have forgotten they were quite scared just last Friday.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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