I actually thought the reversal and subsequent drubbing of the biotech stocks Monday was healthy for the market. I realize that most biotech stockholders would disagree with me, but as you have heard me say countless times, stocks that do not correct become more vulnerable than stocks that do. On the whole, shakeouts are bullish.
Now do I like the chart of iShares Nasdaq Biotechnology ETF (IBB)? No, I do not. Heck, if I showed you this chart and you didn't know what it was, you would probably be pushing and shoving to get out the door. Forget that spike low from Aug. 24 and look at the last six months and you would call that a top.
This being biotech, though, it tends to be the cat with nine lives, so I would note there is plenty of support in the $330 to $340 area, so unless that area gets broken, this is just a shakeout.
As for the overall market, we rallied, although, it wasn't particularly inspiring, was it? The best news of the day came in the form of market breadth, as it remained positive all day even when the S&P gave up all its gains and went red. That, folks, is a massive change from just a few months ago, when breadth would go negative while the S&P was up. It's those small, subtle shifts that I continue to monitor. So far, all it has done is give us a lot of back-and-forth in the market.
In terms of sentiment, the equity put/call ratio slipped to 55%. As you know, under 50% and I call it bearish, so to get to 55%, I at least get concerned, especially since this is the lowest such reading since July 30, and we all know how August turned out.
In other one-day sentiment readings, the ISE ratio pushed over 100% for only the second time since late July. It is not at any significant level per se, but I found it curious that on such a mixed day in the markets, the options players were so lopsided. The good news is that the moving average lines for both the equity put/call ratio and the ISE ratio are heading in the direction that remains supportive of the market.
Sticking with sentiment, this week's bloggers chimed in with a mere 8% bulls. That is something to pay attention to, since we haven't seen a reading under 10% since the October low last year. Thus, this cannot be viewed as bearish for the overall market, but gets put into the bullish camp. http://tickersense.typepad.com/ticker_sense/
For now, the 30-day moving average of the advance/decline line (the intermediate term) is still oversold and therefore is supportive of the market, while the shorter-term Overbought/Oversold Oscillator is somewhat overbought. I realize you are sick of hearing this already, but this continues to look like a process to me as stocks try to find the levels that work for them, both at support and at resistance. We all want instant gratification, but the market is not feeling terribly accommodative in that respect right now. Patience is required.
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