How About That Itty-Bitty Breakout?

 | Aug 08, 2017 | 6:00 AM EDT
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Can we call a move to 2480.91 -- essentially a few points over the recent range in the S&P 500 -- a breakout? We can, but honestly, I thought we might get more than that. But we take what the market hands us, and on Monday it handed us a minor up move out of the 2470 range we've been mired in for nearly three weeks.

There were a few positives to note. First was that the SOX led, although the index remains far below the recent peak in June. Second was that the net volume for Nasdaq (up minus down volume) was the best it has been since July 19. I would not call a net volume reading of +470 million shares in a market that rallied half a percent good by any stretch of the imagination, but the fact that this was the best reading we've seen says a lot about how weak the underpinnings have been.

Sticking with the volume discussion, last week we looked at Nasdaq's McClellan Summation Index using volume and I noted that it would take a net differential of +1.5 billion shares to reverse the current down move to up, and that in 2017 that had typically been enough to consider the market oversold. Since that day, Nasdaq has rallied 43 points, so I suppose it worked, even if the rally has been lethargic.

But this brings us to the Summation Index itself. Even after two days of rallying, it will still require a net differential of +1 billion shares to reverse course from down to up, thus the indicator is still heading down. As you can see on the chart, it has also made a lower low relative to the June low.

Of course, you can see prior weakness in this indicator hasn't had a marked effect on Nasdaq itself. Like all the other indicators, the swings have shown up in the Russell 2000.

But back to the positives. The equity put/call ratio was 77%, which quite frankly is a bit surprising because it is rarely so high on a day where the markets are higher. Over 80% is considered extreme or too bearish (and therefore bullish for stocks).

I still think we're likely to see a retreat in stocks again midmonth, as in perhaps next week.

Away from that, I was asked to update my view on oil. It's been a few months, but as a reminder, when oil was down in the low $40s and everyone was calling for $30-something or lower, I noted that I thought we were more apt to see a rally. It was and still is my view that oil is likely to be in a wide trading range for some time. Each time it looks like it is breaking out, it is likely to fall, and each time it looks like it is breaking down it is likely to rally.

So with oil just shy of $50, I think it's in the middle of nowhere. My view right now is that about $52 (upper line) is the limit. And in the short term, support is back near $47. A move over $50 and I think $52 comes our way, or a push down to $46-$47 and I think it rallies.

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

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