Was Friday's Rally a Swing and a Miss or Are Bases About to Be Loaded?
Traders saved the market on Friday from dipping below an important trendline. But what's next?
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Years ago, when Albert Pujols was in his prime and still playing for the St Louis Cardinals, he had had some injury and wasn’t batting particularly well that summer. His batting average dipped to something like .295, and he was unhappy, having mostly been over .300 for his career.
He then came on strong, getting that batting average back over .300 for the season in a hurry. Cardinals fans joked that Albert didn’t like dipping under .300.
I thought of that on Friday afternoon because it was pretty clear market players did not like the prospect of the QQQs or the S&P dipping below that line. Thus, we got a save.
We already know about heading toward a short-term oversold condition since I have covered that extensively in the last few days. So let me say that if we give up some or even all of Friday’s late-day rally, I still think we’re on track to get oversold and rally this week.
Last week, I showed you the Russell 2000 and its Momentum Indicator. Today, let’s look at the Nasdaq and its Momentum Indicator. As a reminder, I walk the index down (in this case about one thousand points) in the next week or so, to see when the indicator stops going down and starts going up. That occurs midweek this week. It is not meant to pick the exact day, but the general time frame. This is another sign of short-term oversoldness.
Did we get some form of panic or fear Friday? A little bit. The put/call ratio ended the day at 1.08. That is the highest reading since April. When we break it down, we see that the put/call ratio for ETFs clocked in at 1.73, which is high, at least for this market it is. To put it in perspective, on October 30th (when we saw giddiness in the market), the ETF put/call ratio was .81. That’s a change in a week.
The put/call ratio for the VIX also jumped to 1.04. This means folks (mostly pros) are betting on a lower VIX. Unlike the other put/call ratios I consider contrary, with this one, we want to go with it since it’s mostly played by pros. A lower VIX usually means stocks rally.
I don’t think the VIX got terribly jumpy Friday, but the data says it ought to back off from here.
One other point I would like to make is regarding the Transports and the Utes. The Utes bounced right off a nice line last week, after having corrected about seven percent (probably why we stopped hearing folks recommend them on television). The Transports have rallied eight percent in the last month. I cannot remember the last time the Transports rallied, let alone rallied while everything else was down. What if they break out?
On an intermediate-term basis, not much changed, but since the majority of stocks peaked last summer or in September, we’re just trying to catch an oversold swing.
