When I began to talk about an end to the correction two weeks ago, I got lucky. No sooner did I expose my anticipation of a break-out to the upside then the market started to rally. Whew! It sure made me feel better. Then, just as I was wiping the sweat off my brow, congratulating myself , bam: We came right back down again. That did not make me feel so good.
Over the last two weeks, I have spent much of my time fretting that this time my indicators had failed me. I worried that even though the market was oversold, it couldn't rally. I worried that one good whack to the downside and the number of new lows would expand. But despite all this worrying, the indicators just held steady. And now that we have had a big upsurge -- it has made me feel relieved, with renewed confidence in my usually reliable indicators -- I feel it's time to review where those indicators stand.
(Because to the timing switch in my column this week -- from the usual Friday to Sunday -- I will not present charts today. Please look for these charts in my Tuesday column. In addition, starting tomorrow, you can view several of my indicator charts on
on a daily basis in the Regulars box. I hope you enjoy this new feature).
First, even after this big move, we are not yet overbought. This market still has some upside momentum left. Since this indicator is based on the 10-day moving average of the A/D line and the A/D line has been so awful for so long, it gives the market a chance to keep on going.
The advance/decline line on Friday was, by the way, the best we've seen since mid-January. It's been nearly two months since a rally was so broad-based. Did you notice how many stocks were up without being up explosively? That is good action when the market spreads the wealth like that. Typically that means money is flowing into many names, not just a few. Narrow rallies are not good. This was not a narrow rally.
The new highs expanded. This was the greatest number of new highs we've seen since February 1. That's more new highs than when we were at these same levels just two weeks ago. That's moving in the right direction.
Finally, the other momentum indicators that I monitor are swinging upwards. The 10-day moving average of the new highs minus new lows has been curling upwards for two weeks now. The McClellan Summation Index is also headed upwards. This all adds up to a rally with some room to go.
Is this market just hunky-dory now? Quite frankly, no.
There are still some indicators that nag at me, but with momentum on the side of the bulls, I'm willing to give these indicators a chance to get in gear. While the new highs are expanding, in order for this upward move to sustain us at new highs, the number of new highs must beat out the 154 we had back on January 6. With so many charts just 1/8s away from a new high, this indicator may begin to show some strength.
In addition to expanding new highs, we need to see the Transportation Average get through that very resistant 3400 level. The
New York Financial Index
, which has had a great run, must now surpass its January high of 546. And it would be nice if the
could get to new highs, too. I'd like to see the
at new highs as well, but that's not likely to happen in the near future.
With momentum on its side, this market has more room on the upside. Due to that momentum, it is my opinion that we give these "nagging" indicators a chance to catch up with the
Dow Jones Industrial Average
. It's too soon to criticize this rally. This market has enough critics right now. But skepticism is the type of environment in which the market typically thrives.
Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets Tuesdays and Fridays and updates her key charts daily. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill.