Stocks: Desperately Seeking Follow-Through
S&P’s Mark Arbeter says market up-moves need to own existence accompanied by higher volume
By Mark Arbeter From Standard & Poor’s Equity Research
From a Standard & Poor’session Equity Research tale published Nov. 14
Who says money doesn’t fall from the sky, and with haste. On Thursday, the powers that be forced the S&P 500 below key take the part of about the 840 level. What happened after that was pretty amazing. The index plummeted about 20 points in ten minutes, only to reverse sharply to the upside, soaring almost 8% in two hours, and in doing so, the mart completed a correct upside reversal after a incomprehensible false break to the downside. We have seen this type of action on a few occasions over the years and it amazes us each era. Manipulation by the “Big Guys?” We think it was, still put on’t ask us to prove it. The extremity result was sweet, so we’ll leave it at that.
In our survey, the market was primed similar to being an upside reversal. We think the S&P 500 was either going to tear asunder 840 and keep heading lower (low likeliness) or break 840 for a few hours or a day, and then reverse dramatically back to the upside (higher likeliness). When it was the whole of said and done, the second scenario played out perfectly and the index finished Thursday with a 7% gain and a whopping 11% or all but 100 S&P points above that preordained early afternoon intraday low.
Are we finally out of the woods? Who could possibly answer this question after all that has happened over the last embrace of months. The most direct answer is we just don’t know yet, but still take it (fingers crossed) there is else risk to the upside than to the downside in the short- to intermediate-term. Both the October and November rallies ran out of gas just above the 1000 level. During those rallies, in that place was some minor evidence of accumulation by institutions, but not enough to propel us out of the recent, frustrating range.
So, to answer the above question with an “if” statement seems convert. If we see greater price follow through accompanied by higher volume levels on this rally, therefore ay, we are out of the woods, at least for the short- to intermediate-term.
Our thesis for a breakout and bigger rally is based on the chart formation from late September, into the initial October low. Because of the swiftness to the downside, we surmised that there was not a whole lot of supply overhead. Well based on the chart pattern, we made an educated guess that may have gotten delayed. Obviously, supply of stock has come out of the woodwork, possibly hedge funds meeting those November sell instructions from their investors. Wherever it came from is not our concern. But once we get through this overhang, the 1100 to 1200 area on the “500″ is not revealed of the question by recently this year or early 2009.
Leading up to the key reversal on Thursday, which by the progression, saw the heaviest volume on the Nasdaq from the time of October 23 and the heaviest whirl on the NYSE since October 16, in that place were more inadmissible examples from a market inner basis and some pretty hefty readings from market sentiment. In other talk, we saw some other washout and mini panic. The NYSE decline/advance ratio spiked to over 11 on Wednesday, not quite since bad as the levels seen in September, but, nonetheless, extremely elevated. On Wednesday, for the most part 3000 NYSE issues fell out of a total 3250 that traded. It can’t get plenteous worse than that.
The 6-day summation of advancing vs. declining volume steady the Nasdaq fell to 0.26 attached Wednesday, not quite as bad as the October 9 reading, but one of the worst since 1996. This higher low from this indicator besides represents a bullish divergence from an extreme oversold grade, putting in a higher low in which case the Nasdaq moved to a lower exhausted.
Another very important positive disagreement that the market has been working in succession is the percentage of stocks on the NYSE hitting new 52-week lows. Many times, as a market is bottoming, you determination procreate a series of bullish divergences through respect to this incorporeal measure. During the first low on October 10, 88% of NYSE issues posted 52-week lows, a record, and more distant exceeding the aim posted on the lifetime after the 1987 crash of 54%. When the S&P 500 tested the October 10 moo at the end of October, the peak in newly come lows dropped to 35%. Yesterday, when the “500″ tested the price lows once further, 24% of issues hit strange lows, which is still a same high prelection on an historical basis. This pattern of fewer new lows as the market attempts to base is a just actions sign and indicates that the internal structure of the emporium is improving beneath the surface.
From the sentiment side, the equity-only put/call (p/c) ratio was fairly high this week, finishing between 0.92 and 0.97 from Monday to Thursday. This is somewhat similar to the sort of we saw going into the October 10 low, high and sustained levels of fear. This elevation in the daily p/c ratio has pushed the 5-day unmingled average up to 0.93, close to the peaks on October 10 and during the market bottom in March. The 10-day exponential is up to 0.88, also near the October 10 level. The ISE sentiment index (send for/put ratio) lay prostrate to 0.67 without interruption Wednesday, one of the lowest and most fearful levels since the temporal market bottoms back in January and March.
As we talked about last week, crude oil appears take pleasure in it may be in the early stages of bottoming away after the massive pendant off the mid-July highs. Prices have dropped into a large area of chart support between $55 and $70/barrel. Long-term trendline support, drawn off the 1998 bottom, comes in rectilinear around the $55/barrel level. The more pieces of lock opener patronage in one area, the more to be expected that prices will bottom out in that area. On the upside, chart resistance isn’t weighty until the $85/barrel level. A 23.6% retracement of the bear market targets $82, while a 38.2% take back is up at $94. Prices are now 40% below their 65-week exponential average, an extraordinary oversold condition. Just back in June, prices were 48% too high for this average.
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