Is your head spinning around yet from all the ups and
downs and going-nowhere trend we've seen? In my view, the
biggest change we have seen so far in 2015 versus
previous years is that we actually have a two-way market.
By that, I mean even though it seemed as if all we did
was go up in 2013 and 2014, in reality we had several
market swings. During those swings we rarely had benign
breadth readings; mostly we had what I termed the "all or
none" market. We were very one-directional -- up and down
-- now we have a market that doesn't have massive breadth
readings on up or down days every single day. Sure, the
indexes are wildly swinging, but the whole market is not
swinging with them.
I have given the example in the last few days of
Tuesday's 27-point decline in the S&P 500 that was
coupled with benign breadth that was only negative by 400
issues. Even Wednesday's similar decline of 27
points only had a net negative reading of 1,500
issues. But much more than the breadth is the
relationship of these large-cap indexes and stocks to
small-caps. This is a theme I have harped on now for at
least a month.
This doesn't mean I think large-cap stocks are awful and
can only be played from the short side. It means there
are plenty of stocks that don't go up on up days and
plenty that don't go down on down days. To show you how
different it is, notice that all the big-cap major
indexes are below their 50-day moving average lines, in
some cases far below. Yet the Russell 2000 is above its.
That was not the case in all of 2014.
And then there is the fact that the S&P revisited the
midmonth lows (but not December's as I so hoped for) and
the Russell did not come down that far. I have shown the
chart of the Dow relative to the Russell countless
times lately, so I want to do that one more time to show
you that despite the last two days where the Russell
lagged the big-caps, it looks more like a blip on the
chart. I believe as long as that ratio stays under the
flat line I have drawn in, this trend should continue.
The best news I have from today's statistics is that the
put/call ratio remained quite high all day. Below you
will see the chart of the 30-day moving average of the
equity put/call ratio. It has turned down. If it stays
heading down it would be bullish, but quite frankly when
I looked ahead to the numbers it was dropping in the next
week or so, I am not convinced the decline in the moving
average line can continue unless the market really ramps
up from here because of the low ratio readings we're
dropping going forward.
For now, I'd say we did not get the setup I so desired,
so we'll consider this all part of an oversold rally for
I was asked to follow up on WisdomTree India Earnings
ETF (EPI), to be long the Indian market. We showed
the chart here bullishly a few weeks ago. It has since
broken out and has consolidated its gains. The chart
measures to 26.50. While it can easily pull back and
retest the breakout at 23.50, I would prefer it if held
on here since that would indicate strength.
The 30-day moving average of the equity put/call ratio is
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Sohu.com (SOHU) looks to me to be early in forming
a long-term base. As you can see, there is plenty of
resistance between $55 and around $60 from last summer,
it is trying to eat its way through that. I would prefer
to buy this on dips toward $54-$55, and my expectation is
that over the next several months it will back and fill
between $50 and $60 to carve out the right side of the
chart, completing the base. If that should happen, then
when it eventually breaks out -- if it does -- it would
measure into the low $80s. This is obviously not on the
"short term" trading plan! While a trade under $50 does
not spoil the chart, it would make me uncomfortable and I
would prefer it does not do that.
Back in December, we looked at Microsoft (MSFT)
when we discussed the concept of lower highs, and I used
it as an example of how a top forms with lower highs and
lower lows. It broke down badly this week, but the
measured target was about $41 and it is rebounding from
there today. The big hurdle will be for it to get over
$42 and stay there. I would think the rally would peter
out in that $43 area. If I thought the market had had a
good low here, I would have looked for a move up to fill
the gap to that $46 area, but right now it looks more
like an oversold rally on Day 3, from the measured
Valero (VLO) is about the only energy stock in my
pile that has had a massive run upward. This is how bases
form. The stock has a lot of resistance in this $53-$54
area, but pullbacks into the $49-$50 area now look as
though they should hold and continue fleshing out a
proper base. Eventually this ought to break out over that
line that is currently near $53, which would signal the
completion of the base.
But will the flood gates stay open long enough for that needed final flush?
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