Skepticism Clouds This Rally

I'll bet by now you've forgotten that the Fed met on Tuesday and raised rates yet again. That's because Google (GOOG - commentary - Cramer's Take) stole the spotlight.

Now here we are with a market that, not surprisingly, was able to shrug off the Google miss and rally anyway. But anecdotally and statistically I see you're still not convinced that all is good in stockland.

Why is it that everyone is so suspicious when the Dow Jones Industrial Average has a party and no one else joins?

Normally when we get such a big negative event and manage a rally, folks embrace the rally. They cheer, they encourage the rally, they forget the bad news and see it as a buying opportunity. Yet Wednesday folks scoffed.

I can tell they scoffed anecdotally, but also because the put/call ratio soared.

It soared to the highest level we've seen since that big down Friday nearly two weeks ago. Wednesday's reading was 93%, while that Friday's reading was 108%.

Can you imagine that? On a day the DJIA is down 200 points the put/call ratio is marginally more than 100%, and on a day the DJIA is up 100 points it's marginally less than 100%.

Shouldn't the decline in oil have made folks feel better? Well, I guess since breadth would not have kept pace without the oil stocks -- which is what happened yesterday -- even cheaper oil couldn't help. So now we have a market conundrum: higher oil prices keeps the rally alive and looking statistically healthy while lower oil prices, which should help stocks, makes it look statistically unhealthy.

Maybe that's why sentiment is so bearish. Yesterday's Investor's Intelligence readings chimed in with the largest percentage of bears since early November. In fact, all those rises in bearishness you see on this chart were at market lows, not highs. You can see it's hard to find a time when the market fell apart with this many bears. That makes two sentiment indicators that tell us folks are not embracing the rally.

But while everyone was watching the oils and Google, there were stocks that finally got tired of going down. I noted Paychex (PAYX - commentary - Cramer's Take) and Texas Instruments (TXN - commentary - Cramer's Take) among them. Neither one has a great chart, but both are down and managed to bounce off their longer-term uptrend lines.

Of course the flip side of that is as soon as I said something nice about the Transportation Average, it went down. And it went down with lower oil! It couldn't even manage to get back to green by the end of the day.

The bottom line is that I continue to expect that the market will be maximum overbought somewhere between today and Monday, with Monday much more likely as that's the day the 30-day moving average of the A/D line will also peak once again.

So we should not be surprised that we rallied on the Fed or Google news. The market goes down much easier on bad news when it is also overbought.

Overbought/Oversold Oscillators

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

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Helene Meisler writes a technical analysis column on the U.S. equity markets and updates her charts daily. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At the time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.