Even if I had a gun to my head, and was asked if I thought the market
would rise over 2% two days in a row, I would never had said yes. With the
intermediate-term indicators not quite oversold, it is even more shocking
to me. Sure, I thought we'd see an oversold rally based on several of my
shorter-term indicators, but not an explosion.
Yet today was not nearly as impressive as yesterday, statistically
speaking. For example, the breadth on the NYSE yesterday was
+2,450, and today was +1,960. It might not seem like a lot, but it needs
to be monitored. As you known all year long, breadth divergences have
preceded market tops.
There are two charts I want to share with you today. The first is that of
the Dow Jones Industrial Average. It is headline-grabbing with
its 400+ point move. It broke this short-term trendline early last week,
and has now scurried right back to it. Even though we are not overbought
yet, this could act as resistance in the near term, especially when you
consider that only three of the 30 Dow stocks made new highs today.
Then there is the chart of the Russell 2000. There is a potential head-
and-shoulders bottom in it. It still needs to clear all those old highs, and I
am unconvinced it will do so easily. But if this rally can turn all the
indicators back to up-swinging, then this would measure longer-term to
There is something else you should be aware of. You might recall back in
September, a fuss was made over the so-called Black or Death Cross in
the Russell. The pundits all say that when the 50-day moving average
crosses below the 200-day moving average, we get a sell signal.
Remember CNBC making fun of it? But the reality is that when both
moving averages are going in the same direction, that's the market's
trend. Eventually, it did catch up with the market, since you can see the
Russell fell 13%.
In that time, the two moving average lines have never recaptured each
other to see the 50-day moving average cross back up over the 200-day
moving average. No one has mentioned it, but the spread between the
two moving averages is now just shy of two points. It's hard to know
exactly what will push it to a real crossing, but my point is that if we do
get a crossing, it means the trend is up. Folks call it a golden cross.
It is possible we just get a giant chop, and the two moving averages keep
kissing each other, so we will watch for that.
The put/call ratios finally fell today. That means the 10-day moving
average of the put/call ratio did turn down (bullish). In the extreme
short-term, the put/call ratio for ETFs sunk under 100%. If yesterday's
total put/call ratio of 124% was bullish because it meant too many puts
were being bought relative to calls, then the ETF ratio falling under 100%
is not short-term bullish, because it means too many calls relative to
Thus, I would say we are likely to see some chopping and digesting going
forward, until we get short-term overbought again. Based on the
resistance up here, probably a bit of give-back. If the intermediate-term
indicators can swing back upward in that time frame, then I'll give them
credit. For now, these wild swings are simply breathtaking.
I am disappointed that ebay (EBAY) did not move up and above
this resistance line today, but I still have hope that it will. A true breakout
over the line would measure longer-term to the mid $60s. Call it $64-
The put/call ratio is discussed above.
Helene welcomes your questions about Top Stocks and her
charting strategy and techniques. Please send an email directly to Helene
with your questions. However, please remember that TheStreet.com
Top Stocks is not intended to provide personalized investment advice.
Email Helene here.
I would love to be bearish on Quest Diagnostics (DGX), because
I dislike stocks that are near their highs after the market has fallen 5%.
But the reality is that it hasn't done anything wrong yet, because there are
no lower highs or lower lows. I suspect that trend line would keep the
upside in check for now, and a move below this week's low would change
the pattern of higher lows, which would be a warning.
Unilever (UN) has the potential for this to be the right shoulder
of a head-and-shoulders bottom. It's similar to the way the Germany
stock market ETF iShares MSCI Germany ETF (EWG) looks. We
had reviewed that here within the last week. The fact that the right
shoulder is lower than the left, though, keeps me suspicious for now. I
think it gets halted at the downtrend line, but if it can get above it, that
would be very impressive and bullish.
Lumber Liquidators (LL) had a bad second half of the year,
when it disappointed on earnings. It has since built a small base with a
target in the $70 area. There is also an obvious gap to be filled there.
Here's my question on the chart though: why no follow-through today
that would have taken it up and above the early December highs? I think I
would rather keep my eyes on this to see if it can start to get up and
through, rather than speculate that it will. Near-term is questionable, but
ultimately, it ought to tag that target near $70.
But at least the market is now oversold.
FOMC meeting days tend to be volatile.
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
Want more than one service? Sign up to one of our packaged services and take advantage of amazing savings!
After the Bell
Before the Bell
TheStreet Top 10 Stories
Winners & Losers