The Market's Tug of War Continues

 | Mar 19, 2018 | 6:00 AM EDT
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Friday's market action didn't do much to clear up the choppiness that we've seen in the market.

The Dow Jones Industrial Average, which had been the weakest index heading into Thursday's session, rallied almost 200 points on Thursday and Friday. But the DJIA is still unresolved in a triangle pattern, not to mention the fact that the 50-day moving average continues to reside overhead:

The triangle could just as easily head south on Monday and crack its lower line. But what's more important is that we're so far into the apex that if we don't get a breakout in the week's first few days, then this triangle pattern will likely be meaningless.

After all, triangles are only helpful when they're broken somewhere between a half and three-quarters into the apex. The further they go into the apex, the more useless they become.

Unfortunately, we'll be smack into the apex late this week unless the Dow breaks out. That would typically mean that we're in for a great deal of chop.

As noted above, the Dow's 50-day moving average also resides overhead, right around where the triangle's upper line comes in. But as I've discussed several times recently, looking back 50 trading days from here takes us to early January right before the market's sharp pullback.

So if the DJIA doesn't get going to the upside soon, we'll soon replace higher early January numbers with lower late-January numbers. That would make the moving average roll over, and a declining moving average is more bearish than bullish.

Aside from that, the market's breadth was good on Friday, So, the McClellan Summation Index was saved from dropping lower. There's not a big cushion -- -800 advancers minus decliners would put it back in jeopardy of turning down -- but for now, the McClellan's uptrend continues:

It's also time to revisit the ratio of the iShares Russell 2000 ETF (IWM) to the SPDR S&P 500 ETF (SPY) :

We last checked in on this indicator almost two weeks ago, when everyone suddenly seemed to discover the small-caps and I suggested that we would see a back-off. We have, but not that much.

Still, there hasn't been a higher high in this ratio yet, so this week will be a big test. Can the ratio make a higher high or does it turn down before it gets there?

I would vote for a higher high if the market weren't so overbought. But since it is (as the charts below show), I'm skeptical that this ratio can hit a higher high this week:

The Bottom Line

In the end, Friday cleared up very little of the muddy waters of the market. As soon as we sell off, the selling dries up. But when we rally, the buying dries up, too. So, the market's tug of war continues.

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