Let's talk about the chart of the S&P 500: We have so many stocks gapping down and collapsing, but the S&P seems to be meandering about.
Now, usually, I would rather focus on the indicators than the chart, because the indicators tell us so much more about the market than just a chart tells us. Perhaps this will explain why.
First, we have this trend line that has been in place since we got oversold a week ago. We had a nice oversold rally last week, pulled back, and rallied again and now we sit here, unable to go up, unable to go down.
Now let's zoom in and focus on the last week and a half, since we got oversold. We have higher lows and lower highs. The technical analysis textbooks call that a triangle. Sometimes they call it a flag. Let me note that the difference between the two is useful.
If you think it's a flag, then this is bearish. It is bearish because flags are stopping points along the way. You would view that move from early May to Monday as the flagpole and the last week and a half as the flag. You'd also believe that the flag showed up at half-mast, which means the next move is in the same direction as the original pole, which would mean it should go down.
Or you can view this as a triangle, with a pattern of indecision. You simply wait for the breakout in one direction or the other to tell you which way it wants to break. The thing about triangles, though, is that for them to be effective, they should breakout somewhere between halfway and three-quarters of the way into the apex. So the breakout had better show up on Thursday. Also, most believe that triangles are halfway points as well, and the breakout should be in the same direction the market was heading prior to the formation of the pattern.
Basically, if you look at the shorter-term chart using the pattern only, you should be bearish. If you zoom out and care more about the trend line, then you could say it hasn't broken yet, thus you'd lean bullishly as long as that line wasn't broken.
But even the indicators are now in a state of indecision. We've worked off the oversold condition but never made it to an overbought condition. The intermediate term indicators are still not oversold.
And hasn't iShares iBoxx $ High Yield Corp Bond (HYG:NYSE), an exchange-traded fund to be long on high yield bonds, been pretty much in lockstep with the S&P this year? So why has it responded to getting oversold, even closing green on Wednesday, while the S&P has been so choppy?
Yet sentiment, while not extreme, is quite gloomy. The 10-day moving average of the put/call ratio has rolled over as I had expected it would this week. But as you can see from the chart of the S&P, it hasn't mattered.
I am at the point where I just want the market to move, get out of its malaise, show us something, up or down.
Meisler will take Friday off and her next column will be May 28.