Broad Rally Doesn't Cure All Ills

The impressive breadth can't obscure several problems in Tuesday's move.
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When I said Tuesday morning that we were oversold enough to rally, I certainly never expected this. Heck, I thought 1260 was asking a lot. But clearly I was wrong.

The

S&P 500

went right through the neckline of the head-and-shoulders top I had drawn in, so we can consider that negated now. Now the S&P is back at the downtrend line, which comes in at 1270.

For that matter all the major indexes, with the exception of the

Dow Jones Industrial Average

, are at downtrend lines. Funny how the rally took us right there and then stopped.

But I'm going to complain about the rally now.

I'm going to complain because while volume was good, it was not great. In fact, had volume not been so low these last few weeks, Tuesday's volume would have seemed somewhat run-of-the-mill.

Then there's the problem with the new highs. The number of stocks making new highs looked great in the published numbers, which showed the

NYSE

had 220 stocks making new highs while on Dec. 1 we had 240. Not bad. Makes you think that if we did get up through the recent highs of 1275 on the S&P, we ought to see an increase in the number of stocks making new highs relative to the Dec. 1 peak.

But there's a catch.

When we use the new highs on common stocks only the story is not quite so bullish. Back on Dec. 1 we had 115 new highs, but Tuesday we had only 64. I would say that's quite a big difference from the published numbers and one that is not so bullish.

And the same calculations for the

Nasdaq

yield results that are more like the common stocks only. Nasdaq's peak reading for new highs was 185 back on Dec. 1, whereas Tuesday we had only 94 stocks making new highs.

But the thing that really bothered me was the fact that this rally was supposed to be all about the

Fed

stopping (how many times have we heard this before?) and yet bonds barely budged on the news. But the banks did great, right? Well, the Philadelphia KBW Bank Index (BKX) rallied, but it couldn't even get to 106, the previous high.

What's more, the BKX did not outperform the S&P at all. The ratio didn't even budge from Friday to Tuesday!

Okay, enough complaining (for now).

Breadth was good, very good, and the market is still moderately oversold as the oscillator says we can rally another few days. At this point the oscillator ought to get overbought again on Friday, which will be an interesting day as it's the next big news day for the market, when we get the employment report.

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;

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