Marking Time
Yesterday’s
action appears to have put the kibosh on the market’s latest rally as
all major indices had a high-volume reversal day. This occurs when the markets
are up strongly throughout the day — only to fail on the rally and finish
lower. Is this the end of the world? Absolutely not. But it does provide the
technician with the ability to define very important levels.
The definable resistance areas are
1173-1176 on the S&P 500
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— where it topped on 12/18 as well as yesterday. The Dow
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broke out of their respective bases but quickly fell back into them. You can use
about the 2080 area on the Nasdaq and 10,200-10,250 on the Dow. Those numbers
are not the exact highs, but approximates.
I would continue to play the game the
same way. Even though the markets have now marked time for several weeks, there
have been a number of stocks that have broken out and worked. If more and more
stocks start to fail, then we adjust. But no matter what, close stops on
everything. There is no way of predicting if the pullback will be normal or
something much worse…but I will be all over it as it happens.
The sentiment front continues to worry
me. One of my best indicators is now flashing bright
red. I have mentioned this one many times in the past — and if you
recall — it has worked very well. Investor’s Intelligence just came out with
their weekly readings. The percentage of bearish advisors is now sitting at a
three-year low at 22.7%, down from last week’s 27.5%. Bulls are now above the
50% mark at 52.6%, up from last week’s 49%. This is a secondary, contrarian
indicator. Stock and market performance always comes first — but ignore these
numbers at your own risk.