A Smattering of Positive Divergences

 | Nov 18, 2012 | 7:30 PM EST
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On Friday, I posted several times intraday about the session's statistics, but let's take some time here to sum up what we saw.

First, for the first time in weeks, the number of stocks making new lows contracted by a wide margin -- and this occurred even as the S&P 500 was putting in a lower low. Thursday saw 272 stocks making new 52-week lows, while 156 new lows came through Friday. In addition, the Hi-Lo Indicator finally dipped under 20% -- which, as a reminder, puts this indicator in oversold territory for the first time since June.

Hi-Lo Indicator

I have spent much time in the last few days discussing the market's oversold condition, so I won't rehash it in full. But do keep in mind that the market remains oversold, and that this condition comes from a lower low -- and this will need to be retested at some point. Should we manage to see some follow-through to the upside -- which I believe we should by the end of this week -- then at least the first "V" of a potential "W" bottom would be in place. That is a prerequisite for seeing a decent low.

Overbought/Oversold Oscillator -- NYSE

Curiously enough, the put-call ratio stayed quite high Friday, having remained above 100% despite the turnaround in the market. I would put that on the positive side of the ledger. While the 10-day moving average of the put-call ratio ought to peak and reverse down later this week, I do not expect it to rise above 115% before it reverses. Should it get up there, I would view the development as an intermediate-term positive.

Put-Call Ratio -- 10-Day Moving Average

As I noted Friday, in that session breadth was positive by better than 2 to 1 for the first time since Election Day -- and this came even as the S&P turned in an essentially flat day. Also, when the index was down intraday, it was barely down. So we can say that Friday saw some short-term positive divergences.

Finally, the index known as Apple (AAPL) saw its highest trading volume since mid-March. That came on an upside reversal, so it should be viewed as a capitulation day in the stock. Keep in mind that there are two parts to such a day: the capitulation and the reversal. Apple now needs to show some follow-through on that reversal. If it does this, as I expect it will, it ought to see a rally to that downtrend line.

Apple (AAPL)

I do not think the volatility of the last few weeks is over. Heck, the Europeans will be front and center once again this week. But I do think an oversold bounce is in order for this Thanksgiving week.


Overbought/Oversold Oscillator -- Nasdaq

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