I am going to throw a lot of statistics at you tonight, so
let me bottom-line it for you: I expect a bounce, but then I
expect the market to go down again.
Why the bounce? Because the put/call ratio of the volatility
index (VIX) sank to 18%. For the past 18 months we have seen
a market rally within three days, most often within one day,
when this put/call ratio sinks under 20%. The reason is that
too many are betting on a higher VIX and a lower market. In
addition, the McClellan Summation Index now needs a net
differential of +4,800 advancers minus decliners on the
NYSE to halt its slide. Typically, once we get over
+4,000, the market is considered short-term oversold.
To this I can add that the Fear and Greed Index got to 10
today. The put/call ratio for exchange-traded funds (ETFs)
moved over 200% for the second day in a row, showing too
much put-buying again.
So why must we come back down, should we bounce? Because
that is the standard routine. There were more new lows today
than we've seen since February, and that needs to see a
positive divergence. But this is easier to see when looking
at the "what if" chart for the McClellan Summation Index.
As noted above, we have reached a point where we tend to be
short-term oversold with regard to this indicator. On the
chart you can see that I have noted points A and B with
black lines. Those are the peak readings we saw for the
"what if" for the Summation Index. Note that we get a short-
term rally and then come down again once the "what if" (blue
line) gets this high.
I don't want to confuse you with a ton of other statistics,
because I would just prefer you understand that we should
get a short-term rally -- and I understand that the
employment number on Friday can throw a wrench into that
view -- and then come back down again.
The correction that began in early July will continue, in my
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I was asked to review the chart of the iShares 20-Year-
Plus Treasury ETF (TLT:NYSE), so although Friday
morning’s economic data will push this around, I will try to
be objective. As you know, I believe we are headed toward
higher rates, but I see this much more clearly on the chart
of the five-year yield than on the chart of TLT. On this
chart, I see support around $113, or at worst $111. If
Friday's employment number is quite strong and this doesn’t
break $113, there will be a message: Shorting bonds is not
the place to be.
I continue to find the chart of yields on the five-year to
be much more "bullish" than I find the chart of the TLT to
be bearish. If the employment number is good and this cannot
get up and over 1.80%, there is a message in that: Shorting
bonds is not the place to be. If it goes through 1.80% I
expect that folks will take notice in a hurry.
Just know that I keep waiting for this chart to go up
(higher rates), and it disappoints me every time.
The 30-day moving average of the put/call ratio continues
higher. Another reason I believe we are still in the
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That is really a nice base that is forming in BioMarin
Pharmaceutical (BMRN:Nasdaq), but that resistance at
$67-$68 is going to be tough to get through. I’d say that if
you have patience, this is surely one to watch for signs it
wants to break out. I’d like to see it spend some time
trading around $62-$62.50 without going back under $60 so
that the next time up it has the oomph to breakout.
How did I miss the lousy retailer Staples
(SPLS:Nasdaq) when I like the retailers? My sincere
apologies, because this is really a great down-and-out
chart. The problem with charts like this in companies such
as this is that the rallies tend to peter out. I think it
will try to fill that gap around $12.50-ish, though.
I was asked to follow up on the chart of the SPDR
Barclays High Yield Bond ETF (JNK:NYSE), an exchange-
traded fund to be long junk bonds. As I noted earlier, it’s
hard to get decent price targets when the numbers are so
small. This top measures to $40.40, and the uptrend line is
at $40.20, so we’ll call it a range. However, the
implications of this chart falling apart are bigger than
just the chart itself. If the high-yield and junk markets
back up, they tend to have a negative effect on the overall
stock market. Glance over at the twin lows in late January
and early February. Early February was a low in the stock
market, but do you see the higher low in JNK? That tells us
JNK leads. So this lower low today is not good.
The market feels fragile when so many stocks go down and the indices hold up.
This prolonged negative breadth is likely to move stocks into stronger hands.
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