It appears the first trip up to resistance in those charts we looked at Monday stopped the rally.
It started with the energy names in the early going, as they faded quickly. So did the banks. Needless to say, by late afternoon the major indexes had joined the back off from resistance. Instead of breaking down on Friday, under 3800 the S&P rallied to 3900. On Monday instead of breaking out over 3900, the S&P stopped there. Will this trading range ever end?
Of course it will. We all know that we get impatient, but nothing in markets lasts forever.
But you know what else we learned from Monday's action? That the market internals continue to act better than the actual indexes. Last week we looked at this chart of New York Stock Exchange breadth with the S&P 500. I noted that the cumulative advance/decline line was already at the equivalent of 3900. Now it is at the equivalent of 4000, closing in on 4100. By that I mean this indicator is now quite close to its late November peak and late November peak in the S&P was 4100 (brown).
With good breadth, we still have the McClellan Summation Index rising. It now, however, needs a net differential of negative 3,200 advancers minus decliners on the NYSE to halt the rise. At negative 3,000, it has stepped a toe into short-term overbought territory. At negative 4,000 it is telling us the market is overbought.
My own Oscillator will be overbought at the end of this week. I realize that coordinates with the consumer price index release, but I don't write the rules, I just follow the indicators.
Monday also saw the number of stocks making new highs on the New York Stock Exchange increase to 100. It did not manage to surpass the early December reading of around 105 new highs, but the new highs did increase. I'll give this statistic a B+.
The number of stocks making new lows on the NYSE fell to 9. That is the first single digit reading since June of 2021. Now, part of that is the math and the timing, but consider that in all the rallies we've seen in the last year not one has taken the number of new lows to single digits. I maintain that means the market's internals are still OK.
The 30-day moving average of the advance/decline line is not oversold. I do believe that if we had entered the year 2023 with the short- and intermediate-term oscillators both oversold, then the resistance in the charts wouldn't matter as much. But when we're not oversold, it's easier for resistance to matter.
I would love to see the market down on Tuesday and then rally one more time later in the week ... but we know the market doesn't usually care what I want.
