Strength in Tech Offset by Weak Banks and Transports

 | Jun 05, 2018 | 6:00 AM EDT
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It's difficult to call Monday's trading a day centered on a rally in the technology stocks because there was more to the rally than just tech -- just look at retailers. But it's also difficult to say it was widespread when banks could hardly lift their heads up, the Transports were solidly red all day as was energy.

Yet breadth remains positive. And it keeps the McClellan Summation Index rising. It will take a net differential of -1400 advancers minus decliners to halt the rise so for now it is on solid ground.

The 30-day moving average of the advance/decline line is still set to get overbought late this week, with its first foray into overbought territory set to arrive Friday. As I have noted previously, the Oscillator's due date for getting overbought is not terribly easy to pin down but it still appears that Nasdaq's Momentum Indicator will reach an overbought somewhere around June 11 which is essentially one trading day after the 30-day moving average of the a/d line steps its toe into overbought territory.

The number of stocks making new highs is what continues to nag at me. The NYSE still has fewer than 191 new highs (the peak reading from May 21) even though both the S&P 500 and the Russell 2000 are higher than they were on May 21.

Nasdaq, which made a new closing high on Monday saw 250 new highs. This is fewer than the 275 new highs it saw in March when it was last here and far fewer than January when there were over 400 new highs. The reason we care about this is because expanding new highs means the market's rally is broad while contracting new highs means it's narrowing.

Then there is sentiment. I would call it mostly a bit complacent but not giddy. The place we are seeing some signs of giddiness creeping in is with the put/call ratio for ETFs. For the past two days it has been 100% exactly. Readings under 100% have typically been short term bearish for stocks. So it's teasing us.

I get asked about gold quite often and lately I haven't had much to say about it. We know sentiment got too giddy back in February and April and it has come down. I did happen to notice that the Daily Sentiment Index (DSI) chimed in at 10 on Monday. Readings in the single digits tend to produce rallies. If I had to imagine what it might take to get the DSI to single digits it might be breaking $122 on GLD If it did that and tagged that line at $121 and the DSI was sub 10 I would buy GLD for a trade. We'll keep our eyes on it in the coming days.

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