What a difference a trading day makes.
We went from Friday afternoon's "is the retest coming?" to Monday's, "is the low in?" But that is what tends to happen in a post-crash period, as we get whipsawed up and down.
I am still of the mind that this rally, the one that comes before the retest, should last long enough and be enough to change sentiment. So far we haven't seen enough to change any indicators, just anecdotal evidence. And it's only one day. If the market pulls back on Tuesday that excitement will likely retreat along with it.
Before we get to the statistics and indicators, let's talk about the chart of the S&P 500. It crossed that steep downtrend line that has been in place since the highs. That is a positive. A downtrend line indicates the rate of descent, so if you cross it you change the rate of descent.
The other pattern to point out is the island that was left behind from the trading from late last week. You might recall, I was in favor of filling that gap above (to 2,600) but the market had other ideas and instead of filling it, it gapped up right over it.
It's a funky island, because there was some trading that took place just a week prior. I have tried to see if there are any steadfast rules on islands and there aren't. So we'll pencil it in as one with some hesitancy; island bottoms are bullish.
Statistically, it was a good rally with 90% of the volume on the upside. Breadth was good, but quite frankly two weeks ago, when the S&P had a day where it was positive 6%, breadth was better than Monday's positive 7%. It wasn't by much, but better is better. That's why I want to show you the chart of cumulative breadth -- the advance/decline line.
Late last week, breadth began to falter, so you can see that Monday's rally finds breadth (blue line), falling short of the recent high, while the S&P cruised by it. This is the sort of thing that can rectify itself in time, but it needs to be watched closely, because if breadth diverges too far from the big cap index, it will be problematic.Breadth was good enough to get the McClellan Summation Index from flattening out, which is another positive.
The Overbought/Oversold Oscillator is a little bit overbought once again, so I wouldn't be surprised if the market pulls back on Tuesday or Wednesday. But the intermediate term is still far from overbought; it remains in oversold territory.