Down Day, Not Dull, Would Be Welcome

 | Nov 30, 2011 | 6:39 AM EST
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Which day was duller in the market? Monday, with its gap up that sat there all day, or Tuesday, with its sideways action?

There wasn't much action in the market Tuesday except that we had plenty of bad news and the market didn't have much selling. European bond auctions did not go well. Iranian students stormed the UK Embassy in Teheran. And AMR (AMR) went bankrupt. Last week, the market would have tanked on that news. This week it sort of milled around.

I suppose the worst news for the market is the action in the banks. The ratio of the Bank Index to the S&P did not get saved and has made a lower low. I always like to give the benefit of the doubt when we break a level to see if we can recapture it quickly, so I'll give this ratio a few days, especially since the banks were downgraded after the close Tuesday. It's entirely possible the banks don't make lower lows, but relative to the S&P, they must at least hold their own. That is key and I remain skeptical.

It has been quite some time since we've checked in on copper. I had not realized that copper not only has been trading in a rather well-defined channel, but also bounced right off an uptrend line last week.

Boy, how I would love a down day on Wednesday. A pullback on the copper chart to the 3.30 area would set up a teensy-weensy head-and-shoulders bottom of sorts.  But what is more important is that any move up out of that channel (i.e. over 3.40 convincingly) should be viewed as positive.

As for my desire for a down day on Wednesday, I suppose the Europeans can disappoint us. Or maybe the five folks who haven't already sold the banks might be inclined to sell them on the downgrade. Or the fact that the back-to-back readings of the put/call ratio under 100% has only happened once since late July and the very next day saw a 2% decline in the S&P followed by a renewed move to the upside.

A down move would likely gather some shorts, which could then fuel some further upside in this oversold rally. With Wednesday being the final day of the month, it would also make for a fitting end to a lousy month. It might also give us a potential W pattern in the market.

The market remains oversold for now but I still think a W pattern is what we should look for.


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