Did you see the hysteria begin on Monday? It crept in slowly, but by the end of the day it was hard not to see how bad the banks are.
All day it was ignored by the media as they tended to focus on their favorite topic of oil and stocks. I mean, how many charts can you look at showing you a correlation between oil and stocks? How many times can you hear that the correlation is well over 95%? I am not saying it isn't so, but I am saying this market is about more than just oil. And late in the day, folks seemed to catch on to the fact that the banks are making new lows almost daily now.
We discussed the Bank Index last week. There is still an unfulfilled downside measured target near 56-57. Even I admit that is a long way off from here, so I took another look at the chart and I can see a shorter-term measured target near 59, which is a bit closer than that, meaning perhaps that is a place for a bounce.
If we take the high of the pattern at 77 and subtract the low at 68, we get 9. If we subtract 9 from 68 we get 59 as a first target. And wouldn't that be something if, just as the hysteria about the banks gets rather loud, we see them bounce?
Please do not mistake this for a bullish call on the banks. Rather it is an acknowledgment that maybe in the short term things are getting a bit overdone for the financials. If we look at Bank of America (BAC), which actually made a lower low today, we see there is a measured target in the $12-$12.50 area from that top. We also can see the rise in volume in the last week. We haven't seen volume reach these levels on a daily basis (i.e., 150 million shares or more traded) since the August low. (Bank of America is part of TheStreet's Action Alerts PLUS portfolio.)
This does not make me bullish on Bank of America, but rather an acknowledgment that it will soon be too stretched on the downside and will need some upside relief.
Away from that, the day's market action was not what I had anticipated. Breadth statistics were poor, but still they did not change the various indicators. In fact, last week as we headed into the Wednesday low, the McClellan Summation Index required a net differential of +4600 advancers minus decliners to turn it up. That made it extreme and oversold but not necessarily within reach of turning the actual indicator.
There is still a long way to go, but as of now it needs a net differential of +1700 advancers minus decliners, so it actually is within reach if it can rally again. I still think we have a chance at another lift in the market. I still think we are oversold enough to do it and sentiment is dour enough as well. But as the market proved again on Monday, it is not going to be easy.
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