When you consider that Friday, July 13 saw the S&P 500 close the week at 2,801 and Friday, July 20 saw the exact same close for the week, I think we can all agree that is the definition of chop.
The good news is that you can see the chop is working off that overbought reading we reached just over a week ago. You can see Nasdaq's Oscillator is probing down under the zero line for the first time since late June and the NYSE's is heading that way. I believe we can be at a minor oversold reading midweek this week. Obviously a decline early in the week takes us there in better fashion since it is my preference to have price rather than time get us to an oversold condition. I also prefer if sentiment gets bearish as we get oversold and price is usually what changes sentiment.
We saw an interesting change in the Insider Sell/Buy Ratio this past week. It shot up to levels last seen in October. I had several responses to the chart when I tweeted it out on the weekend. Those who wanted to see it as bullish opined that it was seasonal, or that the S&P didn't budge last time it was this high. Some even suggested that it was an insider sale at Facebook (FB) that skewed it. To all of those responses, I would report that I prefer not to rationalize an indicator. So what if it's seasonal?
When we compare the two similar spikes on the chart to that of the Russell 2000 we can see there is a correlation. The blue arrow from last July's peak saw a 7% decline in the Russell. The green arrow in late September/early October was much smaller at 4%. What it says to me is that we should not be surprised if sometime in the next month we see the Russell correct.
Of course it might just have to do with the dollar more than anything else; as I noted here on Friday the sentiment had gotten far too bullish for the buck and Friday we saw the buck pull back. The Russell has been quite related to the Dollar of late.
There is one other chart that seems important to watch. It's the chart of the yield on the 30-year bonds. A few weeks ago I drew in the support line around 2.95% noting I expected that level to hold. It did dip under there for a day or two but came right back up. That support level equates to this long term uptrend line.
I expect more upside from 30-year rates with a strong eye on that 3.10% area. That was the high tick area off the May low so if rates can't get over that previous high I'd have to consider that rates are heading down not up. For now I still think there is more upside in rates.
