The morning rally to the gap was much better than the afternoon rally Thursday back to that same level. Why? Because breadth on the first trip up was significantly better than it was on the afternoon trip up. But regardless, it hasn't changed the indicators.
What I think is interesting is that late last week, or even Monday, when the market rallied hard, the talk of a retest faded away. Then Tuesday's slight decline saw it pick up. Wednesday's big decline made the retest crowd even louder. Then Thursday rolled around and the market rallied, so the narrative is quickly shifting to "trading range."
Let's spend a few minutes once again talking about a retest. My experience is that retests rarely show up days or even weeks later. They are more likely to show up months later. Recall the chart from late 2008 and into early 2009 we've looked at. The market made a low right around Thanksgiving and rallied 20% quickly. That's the same thing that happened last week. Another similarity? The low in November 2008 and the low last week both came on the announcement of a Fed quantitative easing program.
After that initial 20% rally, we spent several weeks with a lot of ups and downs. It wasn't until six weeks later that it looked as though the market was breaking out, folks relaxed more, and then we got the rug pull into the March low.
Now let's look at one of the intermediate-term indicators that got oversold last week: the Hi-Lo Indicator. On this chart, I have taken it back to 2006. That blue arrow was in August 2007. You might recall my colleague, Jim Cramer, was on television ranting about the Fed with commentary along the lines of "they know nothing."
That green arrow is March of 2009. Look how many rallies and returns to oversold we had in that time frame, which was 18 months in duration, before we finally left it all behind. That's a lot more than just a double tap, that's many double taps, over a year and a half.
Further on, we see 2011. Those twin lows were two months apart. August and then October. Moving along we come to 2015 to 2016. The first low was in September. The second low was in January. That's four months apart.
Even in 2018, where the market made a "V" bottom, the indicator doubled tapped: first in October and then in December. Again, two months apart.
So why should this particular time be different? Especially, I would point out, even after a 20% rally in the market, the indicator hasn't even been able to lift itself up off the mat. Why should this one single-tap? Why should this time see a retest a week or two later when none of the other times have? History says that's not the play.
I still prefer that November 2008 scenario -- where we rallied 20% and then spent weeks going up and down, getting folks more comfortable with the market, getting some of the extremes off some of the indicators, especially sentiment. And then after a period of time, not a few days or even a week, we set ourselves up for a retest.