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Not a bad showing around a holiday weekend. Solid percent gains on the Friday before and the Tuesday after. The action yesterday and the very light volume associated with it reinforces there were simply no sellers around. Believe me, if there were motivated sellers, even a blizzard wouldn't stop them; the telephone was working just fine and orders would have been called in. The bottom line is the uncertain geo-political and economic backdrop creates sharp moves because after a three year bear market, if anyone wanted to get long or short they have had plenty of time to do it. That means until real extremes are reached, it is a matter of the same money moving back and forth based on the dominant emotion of the time.

The key question now is whether this recent bounce from an oversold near-term condition has any legs and may prove to be the point where an intermediate-term rally begins. As much as I want it to be, the evidence is still not there. The daily stochastic chart is moving toward resistance and away from oversold levels (Exhibit 1). In a supporting role, the weekly stochastic chart has actually reached into extreme oversold levels and appears to be hooking positive.

Hold on a second, doesn't that sound like it is a good thing? In a bull market - yes, in a bear market - not so fast. Any oversold bounces have been brief and sharp using the daily chart and the most recent time the weekly became oversold and hooked positive, it proved to be a better sell signal than a buy signal on the initial bounce (Exhibit 2).

In addition, none of the other indicators have reached the levels that have generated intermediate-term lows and kicked of countertrend rallies that went further and lasted longer than most expected. The MACD and RSI remain a good distance from the desired levels (Exhibit 3&4), while the percentage decline from the 200-day moving average and VIX indicators recently got close, in my view they were not close enough (Exhibits 5&6).

After two strong back-to-back days in the market, many already have that anxiety of missing the next big up move. First, if it were "the" bottom, no one would care and would just want out. Second, if Thursday was "the" bottom and market turns here so many positive divergences would be set up that missing the first few percent wouldn't be missing much because the potential upside would be great. The combination of the two stochastic charts has moved my signal light from Orange to yellow. I still prefer to wait for the indicators, valuation levels, economic landscape and geo-political environment to get within shouting distance of green - it simply isn't there yet.

Exhibit 1 - The near-term chart is moving toward resistance and away from oversold

Exhibit 2 - The last initial oversold on the weekly was a better sell than buy signal

Exhibit 3 - The MACD remains a good distance from prior extreme levels...

Exhibit 4 - is the RSI.

Exhibit 5 - The market was further from the 200-day moving average at prior intermediate-term lows

Exhibit 6 - The VIX index also needs to get a bit more extreme.

No positions in stocks mentioned.
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