RealMoney Silver - Rally's Still to Come, but Not to Stay

Rally's Still to Come, but Not to Stay
By Helene Meisler
RealMoney.com Contributor
11/21/2007 9:06 AM EST

I must admit, this is one pathetic Thanksgiving rally.

One of the highlights of Tuesday's action was that both bulls and bears got shaken out. Bears had gotten too comfortable with end-of-day selloffs, and bulls were too comfortable joining me in looking for a Thanksgiving rally.

The good news for the bulls is that the ISEE call/put ratio plunged once again to a reading below 100%. For weeks on end, folks refused to be bearish, but now they're clearly moving in that direction.

Another piece of good news for the bulls: the 10-day moving average of the number of stocks making new lows. Yes, the absolute number was not bullish because once again, it expanded. But again, take a look at the 10-day moving average. There is no absolute level that this would turn from, but you can see that even during the bear market of 2000-02, once it got spiky like this we had some sort of market rally.

I've noted December 1999 on the chart -- remember, that's when we zoomed up into year-end, an up move that lasted into the beginning of 2000 (and beyond). I've also noted Sept. 27, 2001, which was the low just after Sept. 11. July 2002 turned out to be the right shoulder of the big head-and-shoulders bottom as the market was putting in a floor.

October 2002 turned out to be the head of the head-and-shoulders bottom. I did not note it on the chart, but the spike in 2004 occurred in May, which is noted on the chart of the S&P below.

What I find really interesting when I look at this is that all these spikes in new lows on a 10-day moving average represent a low in the market but not the penultimate low of the decline. For example, note that there is no spike in this indicator at the March 2003 low, which was the right shoulder of that head-and-shoulders bottom.

Note also that there was no spike in this indicator at the August 2004 bottom, which was the final low just before the big push to new highs.

To put this into context: We can't consider the low from this August, which you can clearly see as the spike prior to this current one on the chart, to be anything more than a trading low. And, it's likely, the same is true for this potential upcoming low. That should turn out to be just a low in a trading rally.

This is in keeping with my view that those now rolled-over long-term moving averages on the Russell 2000 and Dow Jones Transportation Average signal a change in trend.

Therefore, I continue to look for a Thanksgiving rally. For those of you who believe I've lost my mind, I refer you to the column I wrote on the rolling over of the long-term moving average lines, as well as the chart above of the 10-day moving average of new lows: It'll only be a trading rally.

I'll be taking the rest of the week off, so I want to wish everyone a very happy Thanksgiving! See you Monday.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.