This column was originally published on RealMoney on Oct. 21 at 8:48 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.
I'm sure if I went back in my notes I could find some time when the market rallied and gave it all right back the very next day, as it did this week.
I'm sure if I went back in my notes I would find that there were times that such action was totally bearish.And while I'm not so certain if we would find a time when it was bullish, I am going to try and be totally unemotional about the market in here and show you just the facts. We know we're oversold. We know just being oversold is not a reason to rally. We also know that markets can get oversold and stay there. But when you look at the oscillator chart today, I want you to notice that you have to squint and use a magnifying glass to see yesterday's selloff on the chart.
And if we come down for the next few days in the manner in which we did Thursday, that oscillator will still not make a lower low. That's right: no lower low on the oscillator. And a higher low on the oscillator while the S&P 500 makes a lower low is a positive divergence. I have rarely seen a time when the oscillator makes a higher low and the S&P makes a lower low that the market hasn't rallied thereafter. And I admit I was shocked to see that the number of stocks making new lows shrunk yet again -- half of what we had last Thursday. Oh I know, the S&P hasn't made a lower low yet, but folks, even if it does so from here, do you really think we're going to double the number of new lows we have now? If they wanted to crush 'em, wasn't Thursday their chance? But once again, it's more than that. On Monday I showed a chart of the 10-day moving average of the new lows and how each time they peaked we bottomed out in the market. They are peaking now. So is the 10-day moving average of the net differential of new highs minus new lows. If it doesn't bottom today, it will within a few days. A few days ago I reviewed the McClellan Summation Index and did many "what-ifs." And while I know it sounded like balancing the checkbook, the bottom line is that a week ago it would have taken a net differential of +4300 to turn this indicator from down to up and now, when the S&P is back where it was a week ago, it will take "only" +2100. Doesn't that speak of losing downside momentum? Many of you also know that the 30-day moving average of the advance/decline line is an excellent gauge for an intermediate-term oversold reading in the market. It ought to reach a maximum oversold Monday or Tuesday of next week. I have rarely seen a time when this
It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our free trial offer to TheStreet.com RealMoney premium Web site, where you'll get in-depth commentary and money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice -- try it now.