Meisler: Newfound Bearishness Has Merit

Over on Nasdaq, the number of stocks making new lows is now the highest since we were at or near the lows of the market. Now, the absolute number is quite small at 19, but when you consider we haven't had this many new lows on Nasdaq since late March, you realize that stocks are outperforming on the downside since Nasdaq was trading around 1500. Considering that Nasdaq's now trading around 1765, you can figure that a decline back to 1500 would show a lot more new lows. That isn't good.

I would like to revisit the chart of oil. For a few weeks now I have said I thought oil was at its upper limit and due for a pullback. In fact, I said a move over $70 wouldn't be sustainable. It has since pulled back. Now we have an interesting chart on our hands. Oil has rallied back to just shy of $70, as you can see on the chart.

Here's a general rule of thumb I use: If we break a trend line and we recapture it quickly then the break was a fakeout, not a breakout. So this becomes a test for oil now. It broke that uptrend line and has now rallied back. If it can't recapture it in a few days then it will look as though it is a real breakdown and maybe even a head-and-shoulders top (although I doubt such a pattern would find its way into a textbook).

I am picking on oil because there was a time that the market would rally when oil rallied, but on Tuesday that wasn't exactly the case. Have the two diverged? Or will one play catch-up?

I think it will be interesting to watch since I'm still looking for an end-of-the-quarter oversold rally to give us a potential right shoulder in the chart of the S&P 500.

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