Maybe the Fed Will Kick-Start the Market

 | Sep 20, 2017 | 6:00 AM EDT
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Everyone seems to think that once we hear what the Fed has to say, the market can stop waiting around and move. My guess is that most think it will rise.

Look at the pattern on the chart of the S&P for the last 10 trading days, using 15-minute intervals. We have essentially had three gaps up and an awful lot of sideways action. Last week we had four days of sideways. So far this week, we've had two. Will the Fed change that? Maybe.

I admit as a pattern watcher, the pattern is different this week than it was last week. Last week, the first green arrow saw a gap and go, meaning we gapped up and had another ramp late in the day. Then we had a second day of a gap, although that day had more of a sideways feel. But this week's gap up was followed by -- well, nothing. And whereas three of those four sideways days saw the S&P 500 close on the high, that is not the case this week thus far.

Perhaps that's because we're overbought and this is the way the market is dealing with the overbought situation. My recollection is that the last few FOMC meetings have not brought the kind of volatility we have seen in the past. Maybe this one will revert back to the way we used to be and provide us with some volatility.

In the meantime, the total put/call ratio slipped to 76%, the lowest reading since July 26. That would imply folks think once the Fed is out of the way, the market will rally again. But we know sentiment is leaning toward too bullish. I've already covered that earlier this week with a discussion of the CNN Fear and Green Index.

I was somewhat surprised that the Investors Intelligence bulls only went to 50.5%. As a reminder, last week's reading was 47%, which I thought was too low. However, I really thought we'd see this scoot right up to 53%-55% this week and they showed restraint. That goes on the bullish side of the ledger for now.

The market's breadth also continues to be positive, albeit stretched. The breadth has been green for eight straight days; that's what makes the market overbought. But the McClellan Summation Index continues to rise. It is still below the August high, but unless and until we see a daily breadth reading of -1,400 (advancers minus decliners) or more, it has an upward bias.

I am still of the mind that the overbought reading should lead to a pullback, but so far that has not been the case.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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