A Broad Look at the Indicators

 | Nov 17, 2011 | 7:16 AM EST  | Comments
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OIH

The dreaded triangle is back, only this time it is threatening to break on the downside -- the S&P 500 closed right smack on the uptrend line.

Rather than focus on one of the most discussed patterns out there, let's take a look at where some of the indicators stand. We already know we're overbought. The Oscillator got overbought on Wednesday and the 30-day moving average reached its overbought reading on Tuesday. I am hard-pressed at the moment to ascertain when either of these will be back to a decent oversold condition. I can see days here and there where we might look very-short-term oversold, but I do not see a string of negative readings that we are dropping yet enough to claim we're oversold.

The McClellan Summation Index is still rising, but it won't take much to get it rolling over.

And the number of new lows on Nasdaq is creeping up again. It is not dire, but considering new lows are double what new highs are, I'd watch this situation carefully -- especially if we break down from the triangle. The same way a breakout to the upside accompanied by fewer new highs would be bearish, a breakdown with fewer new lows will be bullish (more new lows is bearish).

One volume indicator I do not show often is Nasdaq's volume as a percentage of the NYSE's, plotted on a 10-day moving average. This indicator has not rolled over yet, so it is still bullish -- but it is pushing up in the area where it has rolled over from in the past six months. In fact, it is only during QE periods that it hasn't meant it's time for the market to swing back down.

Lest you think I have nothing good to say about the market, let me note that breadth was again not terrible. Let me also note that the put/call ratio chimed in at 139%, a level from which the market has often rebounded the next day (although I will admit that it took two days of such readings to do so in August and early September).

The curious part is that bond yields in the U.S. have barely budged. A break of 1.95% on the 10-year note would signal a retest of the recent lows, but thus far bond yields here have held in a tight range.

Finally, a word about oil, which clearly is not following my script: I thought it would stop around $100. Should oil come back under that $101 area quickly, this move will look like a false breakout rather than a real one. The only part of the equation that doesn't fit is that the oil stocks are not participating, so there is a divergence between the stocks and oil.

Since late October the Oil Services HOLDRS (OIH) has not made a higher high, yet oil is up 10 bucks in a straight line. One of them is not confirming the other. Do you believe oil or do you believe the stocks? I believe the stocks ... but then I thought oil would stop at $100!

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