For the Market, No News Is Good News?

 | May 19, 2017 | 6:00 AM EDT
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Earlier this week, I noted that it seemed as though it had become a daily occurrence that some "breaking news" regarding the U.S. administration would arrive after the market closed. And sure enough, almost every day this week, there was a piece of news to be dropped.

Then came Tuesday evening's news (what was it again? I can't even remember anymore!) and Wednesday's market decline. By the time Thursday afternoon came around, I think I saw at least 20 people tweet that they were waiting for the afternoon news to drop. But the market likes to show you a pattern over and over until you learn it -- and then it changes the pattern.

So of course, there was no news Thursday. This is all just human nature. They can change the markets but they cannot change human nature.

As for the rally, it was not particularly inspiring, as I'm sure you noticed. Breadth was as flat as can be, and this with the S&P up over eight points. Net volume was negative. Negative! And let me remind you it's not as though the Russell 2000 was down; it ended the day on the upside.

But at least sentiment reflected the poor action as the put/call ratio moved up quite a bit to 113%. This is the highest reading since early April when it was 119%. To me, this shows more complacency being wrung out of the market, and removing the complacency is part of what corrections are supposed to do.

In that vein, the American Association of Individual Investors' weekly survey showed 23% bulls this week, the lowest reading since just before the election. At the February 2016 low, we saw this get down to 17%, but there is no denying that 23% is low for the bulls in this survey. Maybe when we see the Investors Intelligence readings next week, we'll see a shift down in bulls as well.

I want to visit the chart of the Financial Select Sector Fund (XLF:NYSE), an ETF to be long the financials. Typically, we look at the Bank Index (it's purer in terms of having banks in it that aren't financials, like the brokers) but this chart of XLF is right out of a textbook when it comes to being a head-and-shoulders top. The pattern in this chart should be familiar to you since I have drawn it in on these pages several times in recent months.

OK, maybe it's not perfect in that the right shoulder is higher than the left shoulder, but the point is that so far it refuses to break $23, the neckline. Here's what I would watch: If this current (crummy) rally cannot get XLF up and over that $23.75 area, then it would be a lower high and would likely break $23 on the next trip down. If this breaks $23, we might get a lot of towels thrown in on the financials.

And when towels get thrown in, we've usually gone from scared to panicked.

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

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