Once again the market gave up a try at resistance, and once again it was rejected. That's two days in a row. But who's counting? Nope, it seems the only counting going on is the countdown to the fiscal cliff. Every peep from the government gossip seems to produce an automatic tick for-for-movement in the markets.
One thing I've noticed bothers me. Countless folks have highlighted the Troubled Asset Relief Program (TARP) vote back in 2008 as an analogy to the fiscal-cliff machinations now. You might recall that Congress voted down TARP the first time, and the market tanked, which essentially forced their hand so much that they voted it the next time in. This was what I had in mind a few weeks ago, when I noted Congress only seems to move with a gun to their head.
It seems the majority of folks in the U.S. believe that either Congress remembers the TARP vote and does not want to see a repeat of it, or they seem to recall that "all was fine" once TARP was finally passed. It's funny what a 100% rally off the lows can force you to forget.
TARP's first rejection took the S&P 500 down to 850 (arrow on chart). The passage of it produced a nice rally, from 850 to 1000 -- and then the index began a descent to 660. My math might be sketchy, but that means just over a 30% drop, from 1000 to the ultimate low five months later. No one seems to remember that. So I suggest folks be a bit more careful when comparing this with the TARP, vote because a repeat of that scenario would not be bullish for the first quarter of 2013.
You see some folks think going over the cliff would get Congress to act, and that it would be just like the TARP vote. Go look at this chart and tell me if you think that is a good scenario.
As for Thursday's market, the Nasdaq's breadth has been negative eight out of the last 10 trading days. It has not been deeply negative, but it's just enough to begin pushing Nasdaq toward an oversold reading. It's difficult to pinpoint exactly when the next reading will be, but if we can see some more downside now, that would set up for another oversold condition near options expiration, just before Christmas.
There is a negative side to all of this: NYSE breadth had its worst day since mid-November, so there was some selling in the market Thursday. This negative breadth had an effect on the McClellan Summation Index, as it halted its rise. If the market shows negative breadth again Friday, that indicator will flatten out -- and, depending how negative breadth is, it might even roll back over.
For my part, I think I will wait for the market to get a bit more oversold before I'll believe the upside is not limited.