Having More Bears Doesn't Make Market Bearish

 | Sep 13, 2017 | 6:00 AM EDT
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It was another day of good breadth. But on Tuesday the big-cap market indexes passed the baton to the small- and mid-cap indexes. Perhaps that is why the number of stocks making new highs decreased so much.

I always prefer to see the new highs continue upward, not drop off. For example, Monday's rally saw 209 new highs on the NYSE and Tuesday saw 169. That's not even close, especially when breadth was so good.

What struck me in all this was the Investors Intelligence readings this week. I grant you, they reflect action through last Friday, but that doesn't change the fact that the bulls at 47.1% are the fewest since near the election.

But what really struck me was the uptick in bears. Granted, 20.2% bears is nothing to write home about, but this is the first time we've seen a "two handle" for the bears since late November. That is not bearish. I do expect we'll see a big jump in bulls next week, though.

In the short term, we will be back to an overbought reading sometime Wednesday or Thursday. And the S&P 500 is nearing that big round number of 2500, so it makes some sense that the overbought reading arrives around this time.

Now I want to address two charts I was asked about. First is that of the transports. As you know, I am positive on this group, but there were a few questions. The first is if I am concerned that there is no higher high for them yet. Of course that concerns me, but since the transports are now up 5% since their low in late August, they get the benefit of the doubt to rest and try again.

The second question is about the resistance overhead. It's there; I have circled it on the chart. And since the transports have run 5% already, I do expect that area of resistance to be a problem. But doesn't this go along with the aforementioned overbought reading? I would not chase them here, but pullbacks should be OK to buy. A move back under 9300 would concern me.

The next question is regarding the utilities and their very large tumble on Tuesday. First of all, I have been bearish on the utes for weeks and have been dead wrong since they kept on climbing. Sure, I feel better about the decline on Tuesday, but all it did was give back last week's gains so far. The red line is support for now, and while I think ultimately the utes should fall under that level, they haven't made a lower low in two months. I am waiting patiently but my patience is wearing thin.

The question is whether utes are negative for the markets. Yes. But so far we don't have negative utes. Unless and until we get lower lows (i.e., a break of that red line), we only have sloppy-acting utes. Perhaps when (if?) they break, we'll get that volatility I think we should get.

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

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