I'll bet by now most folks wish the
Fed heads would just shut up.
I'll bet by now you even miss watching the congressional debates. Anything is
better than watching the slow motion train wreck we have on our hands.
So I'll begin with a bit of optimism. We're still oversold. The number of
stocks making new lows did not expand Tuesday. In fact,
Nasdaq is now
approaching the same oversold condition -- or just about -- as it was in that
horrific week following the reopening of the markets in September 2001.
The chart below is a bit scrunchy since I had to put so much data on it.
But note we have not been this oversold on Nasdaq in seven years.
The utilities, which if you ask me helped signal there was a problem out
there, are also sitting on some support.
And if I really wanted to be an optimist I might even point out that the
transports didn't make a lower intraday low Tuesday, while the
Dow Jones
Industrial Average did, which would be sort of a Dow Theory
non-confirmation.
The real problem for me continues to lie in the intermediate-term
indicators.
I'm sure you are tired of hearing how the 30-day moving average of the
advance/decline line is still not yet oversold. I'm sure you are tired of
hearing how the McClellan Summation indexes are still heading down. In fact, I
ought to inject one other minor bit of good news here. The Summation index for
the
New York Stock Exchange now requires a net differential of +5200
advancers minus decliners to turn from down to flat. Typically, when we get to
the point where we need +5000 or more, it means we're grossly oversold.
The sequence we require is still the same. An oversold rally needs to
begin and lift us away from this area of trading. And then once we get a lift
away from this area we can come down for a retest. I explained in Tuesday's
column that we don't have to come all the way down to the lows. But we typically
come back down at some point a week or so after the initial low. That's what
should give the market some time to get those intermediate-term indicators lined
up.
As long as I am trying to be an optimist here let me also note that the
bond market was flat as a pancake Tuesday. We've usually seen a flight to
quality into the bond market when stocks go down, but we didn't see that
Tuesday. If this whole thing is coming out of the credit markets, then shouldn't
we care what bonds are doing? And they didn't do what they have been doing,
which is go up when stocks go down.
The bottom line is that we still need an oversold rally before we can
have a retest. And the intermediate-term indicators are still not lined up for
more than an oversold rally.
Note: I'm taking a few days off for Yom Kippur. My next column
will be Tuesday, Oct. 14.
For more explanation of these indicators, check out The Chartist's
primer.
