Since late last week I have said I thought the market would pull back and then rally again. We are getting quite a pullback. It's more than I expected but in volatile markets we often see markets play out differently than expectations.
Yet as I sit here and look at the statistics, not much has changed, except for price. Yes I know everyone was eyeing the head and shoulders bottom that I drew in. But as I have explained, it's more about the indicators and statistics than it is the pattern for me.
We have worked off that overbought reading. We are not quite oversold using my own Oscillator. That would take another week.
But when I calculate the Nasdaq Momentum Indicator using a "what if" Nasdaq gets oversold on Tuesday. As we get closer to Tuesday I will show you the chart but this indicator has been a good tell in this market so focus on the fact that it is closer to an oversold now than the overbought reading a week ago.
Surprisingly the McClellan Summation Index has not retreated. It had that big cushion that it is working off. Admittedly another hard down day and the Summation Index will stop going up so it would be better if we saw a good breadth day before next week. But when you consider the S&P has lost over 100 points and the Summation Index is still not heading down that's a small victory.
Sticking with breadth, I continue to keep my eye on the cumulative advance/decline line. It remains far from making a lower low. The S&P is currently 60 points away from a new closing low (for this decline) and breadth would require a loss of 2,800 issues (advancers minus decliners) to make a lower low. Consider that on Monday the S&P lost nearly 55 points and net breadth was -1,400. It is unlikely breadth would make a lower low at this time.
The number of stocks making new lows has expanded since last week's rally but as of now the NYSE had 175 new lows (on Wednesday) which is different than the decline in October. The peak reading for the number of stocks making new lows was 528 on October 26. So again, if the S&P loses another 60 points, do you think new lows will triple? It doesn't seem likely.
Sentiment remains sour, but that has been the case all along. The Investors Intelligence Bulls remain at 42%. The put/call ratio zoomed up to 122%, the highest reading since late October when we saw readings in the 127% to 132% zone. And we can't really blame folks since the resistance overhead is real and has halted all the rallies so far.
But I said a week ago, and almost every day since, that I expected a market pullback and another rally and I haven't changed my view.
