The groundhog saw his shadow on Tuesday, which means we have six more weeks of winter. In the movie "Groundhog Day," Bill Murray's character wakes up to the same day every day. So the question for markets is: Are we going back to Groundhog Day? You know, where markets only go up, not up and down?
I think we should have a few weeks of ups and downs. Right now, we're working on the oversold portion, which means up. Even if the market pulls back for a day or so this week, it won't matter because the Overbought/Oversold Oscillator would head right back to an oversold condition. If you are bullish, a pullback would be desirable.
A pullback would shake out the rally of the last few days. It might even give charts a better look of digestion. But for me, it is the McClellan Summation Index I am going to focus on. For the first time in two months, it has the chance to stop going down. That's the change.
If the breadth on the New York Stock Exchange is positive 200 or better, this indicator will stop the slide that has been with us since early December. Recall that the massive 10% rally in early January in the Russell 2000 couldn't even turn it upward, so this would be new if it is able to do it. It would be the first change we've seen in months.
So why would a pullback make it better? Because a pullback could set it up to turn upward next week. When this is heading upward the majority of stocks are heading upward, which has not been the case for two months now.
Then there is the Daily Sentiment Index (DSI) for Nasdaq. It chimed in at 87 Tuesday. Recall just about a week ago it was 91 and you saw what happened after that. So a pullback now would keep this from getting too frothy with a reading over 90. It would give it a little more runway.
At the same time, the number of stocks making new highs remains unimpressive, although new lows contracted Friday and have not moved up again. In fact, we saw zero new lows on the New York Stock Exchange on Tuesday.
A final word on volume, because I feel as though I have done quite a bit of rationalizing some indicators in the past month, something I hate to do. First it was the number of new highs on Nasdaq with all those triple counted special purpose acquisition companies. Now it is the volume. All those heavily traded Robinhood-type names like AMC (AMC) , Nokia (NOK) and GameStop (GME) have dominated the volume. If they are down on the day, then they skew the volume figures to the downside and vice-versa.
Even if I back out the trading in those few names, upside volume on Tuesday was only 62% of the total . Again, I hate to rationalize the poor volume readings due to these few stocks, but even if I back them out there are still issues.
I still say don't get complacent, just because we rallied for two days.