A Surprising Surge

 | Oct 19, 2011 | 6:15 AM EDT  | Comments
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Helene Meisler is traveling for the remainder of the week. Her next column will publish Monday, Oct. 24.

When I said Tuesday that I thought the market wouldn't go down in a straight line, I thought maybe the S&P 500 would manage a rally back into the 1210-to-1215 area -- not one that zoomed the index right up to the top of the range again.

Exactly a week ago, the S&P traded up to 1220 for the first time, and as of Tuesday night's close it stood at 1225. The bears might interpret this as churning at the highs, and the bulls might see it as an overbought condition that's digesting. I would lean toward the latter scenario, although I still believe the market is too overbought to make significant progress on the upside. I would still like to see some kind of decline that appears to be the right shoulder of a head-and-shoulders bottom.

We are most likely to hear constant chatter on Apple (AAPL) for the next 24 hours -- so let me note that, in my view, any declines we see as a result of these earnings are part of the overbought pullback. Remember the discussion from Monday morning -- that the oscillator gets up into this 600 area and typically we see a pullback and a re-rally? That has not changed.

Overbought/Oversold Oscillator -- NYSE

 What has changed is that the high-low indicator has exploded to the upside. The number of stocks making new highs is still quite lackluster on its own, more so on the Nasdaq than on the NYSE, where this indicator still hasn't exceed the September readings. However, the relationship between highs and lows is what this chart portrays -- and that higher low, coupled with the higher high, is bullish.

High-Low Indicator

The S&P is not on this chart, but that leftmost green box highlights the bottom in 2008 to 2009. Notice the higher high in April of 2009. Look at the middle box, as well, which represents last summer. What is curious there is that the higher high came in early August, so that month's low was a much higher low.

Finally, I want to take a minute and write about gold. Do you remember when gold was the "it girl?" Do you also remember when most everyone thought they were going to buy gold at $1,600 per ounce? Now ask yourself the last time you heard anyone even talk about gold. It has become so lackluster that I'll bet it won't be long before we hear "bear flag" talk on the commodity.

Gold

We saw the same thing occur with the stock market last summer. Remember the 1987 charts and discussion from Tuesday's column and notice gold's crash came in September, about a month after that of the stock market. If we consider that it typically takes around six to eight weeks to digest such a crash, then the market is approximately four weeks into it now. Should gold continue to hang around in this $1,600 area for another week or so, it will probably get interesting again, especially if we continue to see folks bail out of it -- or, my preference, forget it even exists.

 


 

Overbought/Oversold Oscillator -- Nasdaq

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