Tech Rally Brings Buyers Out of Hiding

 | Jul 06, 2017 | 6:00 AM EDT
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No sooner did the FANG/technology stocks rally than my inbox was filled with, "Is it OK to buy tech now?" I suppose that pretty much tells you that whatever bearishness we saw prior to that was only temporary.

Aside from the technology and biotechnology rally on Wednesday, there wasn't much. Many of the stocks that rallied Monday gave it right back, so we continue to find ourselves trapped.

Last week, I noted that if the market could rally early this week with positive breadth (meaning the first three trading days), we would find the Overbought/Oversold Oscillator back to an overbought reading this Friday or Monday. We got good breadth last Monday but poor breadth on Wednesday. So it's still a coin toss.

If breadth is positive on Thursday, then I would say yes, we're going to be overbought Friday/Monday. If breadth is negative on Thursday, then we're still in the same boat we've been in where every few days we go up and every few days we go down. That has been the case for the S&P since we reached an overbought reading in early June.

Then there is the McClellan Summation Index. Look at the last two weeks: It can't budge up or down. It is currently pointing up, but quite frankly one more day of negative breadth and it will turn right back down again.

If we look at interest rates and what they have done over the last two weeks, it surprises me even more that the McClellan Summation Index has barely budged. It's as though one group rallies while the other goes down. They can't all seem to be at the party at the same time. It makes me wonder if all the cash on the sidelines is gone and we're just sloshing around what's in the market.

But back to the chart of yields on the 10-year note. We've got the employment number coming our way on Friday, so we're likely to see a move on that release. Either way, I think a pullback toward that downtrend line would be constructive for now.

Even if we look at the utilities, we see they are well into support and about to tag an uptrend line, or some might call it a flat support line. I'd be surprised if they didn't have some sort of rally attempt from there. After all, they have been red for nine of the last 10 trading days.

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