Wednesday brings us the Fed Meeting. It also brings us the first rate hike in years. If you told me right now exactly what Chair Jerome Powell will do or say in the press conference after the meeting, I still wouldn’t have a clue what the market would do thereafter. But I do think if the market pulls back after the meeting we will once again be looking for an oversold rally.
In other words, Tuesday’s rally didn’t change very much. We still have a short-term oversold condition and if the market comes down on Wednesday that won’t change. Recall when we looked at the Nasdaq Momentum Indicator, it showed an up/down/up pattern midweek this week, showing a modest oversold condition.
Now let’s talk about how different Tuesday’s rally was than the ones we have seen the last few weeks. This time the commodity stocks sat it out. That is new. Sure, they backed off a smidgen last week, but this week, they gapped down and stayed down. That is a change.
And we saw the change in the statistics, too. Breadth wasn’t great. Just note that on the New York Stock Exchange, Monday’s net breadth was a negative 1,600, while Tuesday’s positive breadth was positive 1,260. Add ’em up, and breadth was negative over the two days, despite the S&P adding 58 points between the two days.
We can also look at the fact that the New York Stock Exchange had upside volume at 73%, while Nasdaq had it at 75%. Again, for the point moves, it was unimpressive. It’s not as though the volume has been impressive on any of the rallies in the last six weeks, but Tuesday was the first time it was so centered in the down and out growth names.
Now you know what wasn’t so great about the rally. There are two keys for me in any oversold rally. Well let’s make that three. First is the obvious, when does the market move back to overbought? Right now I don’t have a time frame.
The next question is whether those downtrend lines we looked at last week and are still in place can be crossed. The downtrend line on the Invesco QQQ (QQQ) is up in the $338-$340 area for this week.
The last key is what happens to sentiment? If folks stay bearish, then it’s obviously better than if they decide to warm up to the market. You do not want to see acceptance in a hurry. Anecdotally it felt to me like the chatter got a little bit more positive on Tuesday (than it was on Monday) so we’ll see if that is real or not and how — or if — it changes after the Fed meeting.
Finally, I remain fascinated with the transports. They refused to crack when we had higher oil prices and a war breakout. And they are now knocking on the door of 15750, which would be the first higher high in months for this group.
Get an email alert each time I write an article for Real Money. Click the “+Follow” next to my byline to this article.
