If you spent Monday morning fretting over the market action and the afternoon praising it, then perhaps you are being too emotional about the market.
As the market sold off on Monday morning, breadth was actually pretty good in that it was not keeping pace with the decline. I touched on the breadth last week, but let's look at the chart again. The blue line is breadth and it (for now) is at a higher low than early September. That's the blue line. The brown line is the S&P. So while the S&P broke 3900, the breadth of the market has not broken that equivalent.
I will gladly admit that by the end of the day, breadth lagged considerably as the S&P gained 26 points and the net breadth was only around positive 500.
That breadth reading has not yet moved the McClellan Summation Index. It still requires a net differential of positive 2,000 advancers minus decliners on the New York Stock Exchange to halt the slide, but as I noted 2,000 is easier to accomplish than 5,300, which was the case just after Labor Day.
As I noted in my Monday morning column I am of the mind that by early October we will see bears moseying over to the bull side. If the market rallies on Tuesday will we see that happen before the Fed Meeting on Wednesday? Gosh we wouldn't want that, would we?
Those who look at charts will notice that the market closed right at 3,900 on the S&P where we broke down from on Friday. You might also notice that the uptrend line dating back to the June and July lows was broken.
But did you notice that the small caps, using the Russell 2000 fund (IWM) , did not break? IWM has a rather steep downtrend line in place as well, which I think it worth paying attention to. You see, the 50-day moving average line resides around $184, the same place that downtrend line come in.
Keep in mind that the Bank Index, which has a different chart pattern than the IWM (for starters, its low as in July not June) also has an uptrend line that has not yet been broken. You need to squint to see it, but the Bank Index also did not break the early September low.
I still think we're getting intermediate-term oversold enough to rally. What I don't know -- because of the Fed meeting -- is how the pattern will unfold to get there.
