As I considered the date of this column, it occurred to me that most folks probably don't recall the day the Dow made its high in 1987 -- on Aug. 25, and not in October. It may seem somewhat incongruous, then, that I am again showing the chart of the Dow from 1987 -- but please look at the volatile swings that took place after the crash. I don't believe this action is an exact replica of what we have now, but it is a good guideline.
Now take a look at today's chart of the Dow, which is working on a similar pattern. I realize many folks believe the index can easily rally back to 12,000, which is where resistance is -- and I wouldn't argue too loudly against that. But what's similar are the wild swings in a post-crash environment, and this is what you should continue to keep in mind.
As for Tuesday's action, I am glad we finally saw an oversold rally. Since I am prone to complaining, let me start with the complaint list.
First, for such a big up day, upside volume as a percentage of total volume was downright awful. To put this in perspective, on Aug. 15 the Nasdaq was up about half as much (47 points) as it was Tuesday (100 points). Also on Aug. 15, net volume -- up minus down volume -- was 1.6 billion shares, with 90% upside volume. On Tuesday, these numbers were 1.5 billion and 86%, respectively.
I can do the same for breadth on the NYSE: On Aug. 15 the S&P 500 was up 25 and net breadth was plus 2600 vs. Tuesday's figures, which came to 35 and plus 2100, respectively. Quite simply, the action was not as impressive.
Now for the good news! The high-low indicator finally stopped descending this week, and the 10-day moving average of the put-call ratio turned downward. For those keeping track of the streak of trading days above 100%, we are now on day 18 -- the same as what we saw in March 2008 ahead of the Bear Stearns low. Back then, we saw a nice rally from that point. See the chart below, where I've drawn in an arrow to show when the string of readings above 100% finally ended.
The market rallied, as you can see, but it was not the sort of relentless rise folks have gotten used to -- there were certainly plenty of pullbacks along the way. It was not quite 1987, but also not quite a repeat of the fall of 2010.
Now, if only the Investors Intelligence readings bullish percentage can manage to fall, I'll feel as though we can see a decent rally that lasts longer than a day or two!