Nearly every night for past two weeks, the overnight index futures have been trying to mount another leg up for the market from the March 23rd bottom, and nearly every day the bears try to knock it back down.
Actually that’s typical – as J.P. is reputed to have said famously: “The market will fluctuate.”
As a day and swing trader I’m just sitting on the edge of my desk chair waiting to see which way to go.
Technically speaking, the SPY chart is showing an island reversal for the recent spectacular bounce off the market low.
That is bearish.
In addition the chart patterns I watch most closely — the NYSI and NYMO — are decidedly bearish. After getting wildly and rapidly overbought on the bounce, they have retreated with both highs below highs on the NYMO and a drop below the zero line on the NYSI. In bullish times it usually take three or four NYMO highs below highs to stop a rally. In bearish times it may take but one and several lows above lows to mount one. So far that has been true again (see the NYMO/NYSI line in the middle of the first chart below).
Long term investors, if they are in this market below current price levels, are losing time (at least a year, maybe as much as Trump’s entire term). If they are in at higher price levels they are truly trapped, losing time and losing money.
Regardless, I keep hearing both groups wishing and hoping — and pleading for — more bounce, either to cut paper losses or to get out.
So what’s next?
Having said all the bearish stuff, let’s take a look at the a couple short-term rally possibilities.
The NYMO, despite the current bearish pattern, just did something that is normal in bullish times and is at least a glimmer for a another leg up. It has dipped to the zero line three weeks (15 trading days) from its low. Three to four weeks into is normal for a twelve to fourteen week McClellan Oscillator cycle; it happens all the time in bull markets. Could this be a hint this is the week to try for more upside? A bit of relief, a surge of hope for the bulls? Maybe.
In addition, every day I tabulate all the stocks on my nifty-fifty stock list as to whether they are on buys, buys-overbought, sells, sells-oversold. Have been doing that for years, and it is a list that talks.
See the histogram on the second chart below for reference.
I’ve said before any time 40 or more of those stocks are on sells that is either the bottom of a swing or the beginning of the bottom of the swing. On the chart below, that tallies as 30 or more (stocks on buys minus stocks on sells). The red box mark each time this has happened.
During bull markets, when the nifty-fifty start up again, they either lead or confirm the next up swing. But since February that has not been case. No need to guess why that is so. Whenever a reliable indicator has a change in behavior, it screams there is SOMETHING BIGGER GOING ON HERE! My stock list is one among several technical indicators that have just announced the bear is out of his cave (and he’s given the world a vicious virus besides).
But…like the glimmer on the NYMO, there is a glimmer here also. The stocks on sells has been under forty for three days (there is no four days on this chart), and for the past two of those days it’s been slowing slogging its way higher.
Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.
Needless to say, I could be totally wrong about this since I am arguing against the NYMO and NYSI at the moment, the two most important measures of market psychology there is.
If so…well…it will be a short…again.