There's a Rally in Here Somewhere

I keep hearing how the renewed downside pressure is all about hedge funds selling. It's more about hedge fund redemptions leading to forced selling. That may be true, but I've said this before and I'll say it again: think of 2006 in reverse.

Why was it in 2006 no one complained (well OK, I did!) that the persistent upside felt forced, and unnatural? No one cared. Heck, their stocks went up every day. Corrections would have been considered healthy but we never got one. After a while no one cared.

But it turned out that the persistent bid in the 2006 market was all those quant funds just following the trend. Has it occurred to anyone that the persistent offer in the market this time around might be the quant funds as well? I know my pal Doug Kass referenced it recently.

In 2006, the downside consisted of one or two-day wonders. Does this sound familiar? The other interesting connection to me is that the persistence in 2006 also began in mid-July and picked up steam in the fall. This time it began in late July and picked up steam in the fall.

Back then, it never felt like real buying pressure, just more like a lack of selling. This time there are days such as Tuesday that doesn't feel like real selling pressure. They are more like a lack of buying.

In the meantime, the equity put/call ratio had the chance to eke out a reading over 100% but instead missed by a smidge at 97%. Now back-to-back days of readings in the 90s aren't terrible. We had them on Oct. 23 and Oct. 24, and while Oct. 27 wasn't a great day in the market it did lead to that late October rally.

It probably means there is a rally in here somewhere.

When I go back over the readings for the overbought/oversold oscillator I see that we will be oversold by midweek next week. However, if I use volume figures instead of my usual advance/decline figures we are oversold as early as Monday.

Next week is expiration week. So turning to my "Stock Trader's Almanac" I see that the week before Thanksgiving has been up in 12 out of the last 14 years. Now I'm not much of a calendar hawk. Just because we've traded that way during that week in years past doesn't mean we'll trade that way again. But when my oscillator shows us getting oversold at the same time I do take a look to see if there might be any coordination.

To sum it up, we have the options ratios leaning high again. We have an upcoming oversold reading early next week and we have some sort of seasonal tendency. So a rally sometime in the next week makes some sense. But keep in mind that I had been looking for the rally window to shut somewhere around Thanksgiving again, or early December, so if we get a rally consider it just another trading rally.

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At the time of publication, Meisler had no positions in any stocks mentioned, although holdings can change at any time.

Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. 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.