Sometimes it is better to step back and consider the market rather than react to a one day move. That means we shouldn't react to Friday's rally or today's decline.
Consider this. Two weeks ago Nasdaq was at 8120 and today it is at 8123. Two weeks ago the S&P was at 2933 and today it is at 2932. With the exception of the small-caps, there has been a sideways correction in stocks for two weeks now. Yet every day in the last few weeks we hear about the Melt Up.
Let's review the indicators. We are not oversold, not on a short-term basis, not on an intermediate term basis. In fact we lean overbought on an intermediate term basis. The 30-day moving average of the advance/decline line is overbought as is the Volume Indicator which is still hovering around 52-53% (oversold is low to mid 40s).
The number of stocks making new highs increased last week midweek but when given the chance on Friday it contracted. In addition, the McClellan Summation Index continues to go down as it has since mid-April. That means that the direction of the majority of stocks is mostly down although when I look at my charts I see an awful lot of sideways. Still, the message is "it is not up."
On the sentiment front, we finally got the Investors Intelligence bulls over 55%. They might even be higher this week when they are released because they do not reflect today's trading. So we got to a minor level of giddiness.
We also have the 10-day moving average of the put/call ratio coming up off a low. Monday's put/call ratio was 105%, which leans high, especially for a day we rebounded, but the 10-day moving average says we should correct in the market. Is a correction always down? Sometimes it's sideways.
As you know I like that the small-caps are doing well, something I have thought should happen for the last 5 or 6 weeks. Until Monday no one seemed to notice or care how well they were doing. Since they were the area of strength on Monday, everyone noticed. To show you how much has changed in that arena, the QQQs have been red for four of the last five trading days which is the first time that has occurred since the December lows. No wonder everyone noticed the small-caps. Their beloved big cap tech stocks haven't been doing so hot.
It's very hard to be outright bullish here because of the indicators discussed above. But at the same time there was very little selling in the market Monday since the number of stocks making new lows did not expand and breadth did well as did the small-caps. So it's hard to be outright bearish either. At some point we'll get back to an oversold condition and sentiment will get more concerned than it is and we'll probably be set up for another rally.