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Helene Meisler

Respected technical analyst Helene Meisler scrutinizes the charts and highlights what they're indicating about the market. Updated daily.

Copyright: 1996-2011, Inc.

Eyes Peeled for False Breakdowns

Wed, 17 Aug 2011 11:00 GMT

Tuesday seemed like one of those days the market could have fallen apart, yet it didn't. That doesn't mean bears won't try for it again this week, though. After all, options expiration is coming Friday.

In my view, Tuesday's decline was partly to do with expiration and partly to do with that high put-call ratio we saw on the CBOE Volatility Index (VIX) last week. As I explained last week, in past instances it sometimes it took a few days, but the result was always least one down session soon afterward.

It is possible the market is headed toward a test of the lows right now, but I somehow believe we are not quite ready for it. It continues to feel a bit too soon. Even if we use the 1987 comparison, when we saw a retest one week later, we still saw another retest six weeks later. ...


It'll Come When You Least Expect It

Tue, 16 Aug 2011 11:00 GMT

I want to start by reiterating that the retest I discussed in Monday's column should not come now but, rather, a few weeks from this point. It is important to put time and price between the panic of last week and the next high in the market. We do not see retests when everyone is still on the edge of their trading seat, anticipating the next shoe to drop. In all the cases I discussed yesterday, the retests came at least a month later -- and often later than that.

The other topic that seems to be front and center is trading volume. Did you really expect the market to go from a capitulatory high-volume decline to a rally with volume? Folks do not turn from bullish to bearish overnight. If investors had been bullish, and now have finally capitulated, it will take time for them to turn bullish again. This is just human nature. Furthermore, it is August, when vacations are the norm -- especially if the market has calmed down.

This is not to excuse the low volume. It is certainly not bullish. But anyone looking for a good-volume rebound right now is expecting too much, in my view. ...


This Market Needs a Retest

Mon, 15 Aug 2011 11:04 GMT

Based on the number of emails I have received regarding the concept of a retest, I would say this is a topic that needs revisiting.

Let's begin with the short term. As I explained after Tuesday's rush upward, there's V-shaped action and W-shaped. After Tuesday, the market had had V-shaped action; after Thursday, it had become a W -- and the latter is what I prefer. I think you can see it on the chart of the S&P 500 below:



Far Less Enthused

Fri, 12 Aug 2011 11:00 GMT

So the Europeans are banning short-selling, since that went over so well in the U.S. in 2008. If I recall, at that point the U.S. indices had opened strongly, we saw an exploding number of stocks at new highs, and then there was hardly another uptick from there.

We have spent the past few weeks first focused on Greece, then that seemingly got resolved -- or, at least, the can was kicked down the road. Then our worries moved over to the U.S., where we fussed over the budget and debt ceiling for weeks. That was interspersed with Italy's surge in bond yields. We finally kicked that can down the road when France's banks came under pressure this week.

There is a lot of talk about whether this is more comparable to 2008 or 1987. I see similarities to both, so perhaps it's a hybrid. ...


Pulling Positives Out of the Wreckage

Thu, 11 Aug 2011 11:00 GMT

The one thing we can say about Wednesday is that it certainly sucked the wind out of the sails of the bottom callers. I didn't hear any of these folks on the airwaves after that horrible action.

But, then again, was the action so horrible? Let's dissect it. I want to start with a warning: This is going to sound like I have rose-colored glasses on, and that's because even I am shocked at the short-term positives that cropped up in Wednesday's trading. The big caveat is, if the market opens down on a big gap, many of these positives will be wiped away.

Breadth was surprisingly strong on Wednesday. Sure, the S&P 500 was up 53 Tuesday and down 52 Wednesday, making the action essentially flat overall, but net breadth gained about 1150 issues on the NYSE. The S&P lost 52 points, and breadth was similar to that of last Friday, when the S&P was down a mere 69 cents. I cannot find a way to spin that negatively. ...


Now, That's an Oversold Rally

Wed, 10 Aug 2011 11:00 GMT

Just in case you forgot, that is what an oversold rally looks like!

A few very interesting statistics came out of Tuesday's bounce, though I will leave all the accolades -- such as biggest one-day gain, largest volume, and so forth -- to the others. I will simply note that stocks whooshed down after the Federal Reserve meeting to a lower low on both the S&P 500 and the Nasdaq, and both saw far fewer new stocks making new lows than they did Monday. That is the very first real positive divergence we have seen.



Deep in the Hole

Tue, 09 Aug 2011 11:00 GMT

Does anyone remember when, during the 2007-to-2008 crisis, Jim Cramer said, "They know nothing! They know nothing!" on television in reference to the Federal Reserve? I don't know about you, but I sure wish he would get back on the air and say the same about our politicians. Because it seems to me only Wall Street investors heard what Standard & Poor's said about the downgrade; the politicians did not. Instead, they want to investigate the S&P!

Since it is very clear to anyone and everyone that the market is oversold, I will provide a few statistics on the subject. You can see the chart below, and how the NYSE is approaching the October 2008 lows in terms of its oversold condition.


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Still Short-Term Oversold

Mon, 08 Aug 2011 10:00 GMT

Many weeks ago I discussed the possibility of an August decline. I got lots of questions on the subject, especially after we rallied back toward 1340 on the S&P 500 early in the second half of July. At the time, many folks couldn't see how an August decline was possible. I believed we would go down in August based on the intermediate term indicators I follow, and as noted here almost every day since, the intermediate term indicators are not oversold -- even now.

On the other hand, midweek last week I began noting we would be short-term oversold sometime between last Thursday and today, Monday. After S&P downgraded U.S. debt on Friday night, once again people are asking me if I still think we can have a short-term oversold rally. Short answer: Yes, I do. Again, it is based on the indicators and not an emotional reaction to the U.S. downgrade.

There is a difference between a short-term oversold rally and an intermediate-term low. A short-term oversold rally comes because we have pushed too far to the downside and the rubber band is stretched too far. (Some folks call it a snapback rally.) ...


Off-the-Charts Oversold

Fri, 05 Aug 2011 11:04 GMT

I was really of the mind that the market needed one more shakeout after Wednesday's reversal. I thought a down day on Thursday would do it. I did not expect such market carnage as what we saw.

I have made the case for the past few days that stocks will become oversold sometime between Friday and Monday, and that is still the case. When you look at the oscillator below, you can see it has fallen off the bottom of the page; it has not been this low since the 2008-to-2009 time frame, so we know it's grossly oversold.


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Oversold Enough for a Rally

Thu, 04 Aug 2011 11:09 GMT

When the market plunged on Wednesday morning, my inbox was filled more questions on the head-and-shoulders topping pattern, as well as on the Dow Theory sell signal. So let's tackle those two situations first.

In my view we did not see a Dow Theory sell signal at Tuesday's close since the Dow Jones Transportation Index had not yet broken its March lows. Neither had Dow industrials. Still, I suppose if you use the June low as your guide, then both of these indices made lower lows, which would make for a Dow Theory sell signal.



An Ephemeral Lift on the Horizon

Wed, 03 Aug 2011 11:05 GMT

There was plenty of chatter about the CBOE Volatility Index (VIX) and its inability to jump on Tuesday, or even rally. I saw plenty of reasons as to why this was, and I can appreciate the reasoning; but, as longtime readers know, I dislike rationalizing an indicator. In my view the VIX gets jumpy at decent market lows.

That aside, what we're seeing in the very short term is the Dow working on day nine of a losing streak. I went back to 1980 and could not find a losing streak that went more than eight days. We are also seeing a very high Arms Index (TRIN) again. In fact, the last time the Nasdaq's TRIN was this high was late June 2010. At that point, one or two more days of selling followed, and then we saw a very strong rally.

We have also seen yet another day during which 90% of the volume was on the downside. That is two times in the course of one week, which is also not typical. It often leads to a short-term bounce. ...


Looking for Some Dow Upside

Tue, 02 Aug 2011 11:11 GMT

I have been harping away about an August decline for weeks now. My theme has been that we could see an oversold rally, but that the market would have to come back down again in August. Right now it's only Aug. 2, and so far the Dow has declined for seven trading days. It turns out that is a pretty rare event.

Since 1990 there have only been four other Dow losing streaks of seven days or more. Only one of those times did this extend to eight days. What is so fascinating is that none of these periods of time yielded a ho-hum rally. None of them had a mild outcome -- in either direction.

Heading into July 2010, we saw seven red days in a row. On the chart below you can see the rally that came off that low. ...


Still Seeking an August Swoon

Mon, 01 Aug 2011 11:00 GMT

The debt-ceiling deadline awaits. But was there panic? Oh, there was a bit of it Friday morning, but that had subsided by the end of the first hour.

Let's begin with the oscillator: It is oversold. But do you really need the oscillator to tell you that? The advance-decline line has been red for six trading days in a row now, so of course the market is oversold. Throw in the fact that, in order to turn upward, the McClellan Summation Index would now require more than 4,000 advancers minus decliners on the NYSE -- another solid sign of short-term oversold condition.



A Lousy Rally, Indeed

Fri, 29 Jul 2011 11:00 GMT

So the market rallied and it was lousy. What did you expect? There is an old adage that says markets hate uncertainty, and this is definitely a time of uncertainty.

I had originally thought stocks would be overbought right around now, but instead of rallying when it could or should have done this -- on Monday and Tuesday -- the market went sideways. Now we have to deal with the fact that the advance-decline line has been negative for five trading days in a row. I went back and checked to find that this indicator has not been negative for five consecutive sessions since June of 2010! That means we didn't see this kind of selling even last month.

Now, what you will see on the oscillator chart is that this indicator is hanging about at the lows, or what most folks would term oversold. In order to determine when the market might become oversold, I tend to look at the numbers the market is dropping, so seeing the indicator at the bottom of the page is not enough for me -- and the 10-day moving average will drop positive numbers for four of the next five days ...


Still Looking for a Decline Into August

Thu, 28 Jul 2011 11:00 GMT

Henny Penny, the sky is falling!

That is what I expected to hear on Monday, but it took until Wednesday before we heard such sentiment and saw the kind of selling that indicated that folks were scared.

I do not mean to poke fun at the potential downgrade of U.S. debt or the circus that we have in D.C. at the moment, and I surely do not want to make light of the decline in the market, but I saw Maria Bartiromo gushing over the market last Thursday with the "best day this year" chatter, and on Wednesday she was practically attacking her guests about the horrors of a U.S. downgrade. That was surely a change of sentiment. ...


It's All About That Deadline

Wed, 27 Jul 2011 11:07 GMT

Talk about conflicting signals! One would think that with so many in the media refreshing our memories of Lehman Brothers and the infamous vote on the Troubled Asset Relief Program (TARP), the market would have sold off a lot more by now. Perhaps there is still hope? I suppose it is possible that everyone who has wanted to sell by now has already sold. But it's become all about the debt ceiling deadline.

Keep in mind that, with Lehman, it wasn't really a deadline type of scenario. Even with Bear Stearns that wasn't the case. I am sure we have seen other such deadlines over the years, but the one that sticks out to me is one instance, way back in January 1991, when President Bush gave Iraq a deadline of Jan. 15 to pull out of Kuwait, which it had invaded months prior.

However, back then the market sold off hard in the first two weeks of January as we approached the deadline -- so when the U.S.-led coalition invaded Iraq and was successful, the market rallied. ...


Statistically Unimpressive

Tue, 26 Jul 2011 11:00 GMT

About the only ones who seemed concerned about the market on Monday were the folks in the press. Everyone else seemingly yawned. As I recall, when I first wrote about a potential government shutdown and the debt ceiling back in April, it too received a big yawn!

There seemed to be very little selling -- or, more to the point, very little selling pressure -- in the market on Monday. But, statistically, the market was still unimpressive. Breadth was nothing to write home about yet again (this is becoming somewhat commonplace now). To put this in perspective, last Thursday the S&P 500 rallied nearly 18 points on the day and net breadth (that's advancers minus decliners on the NYSE) was a positive 1,860. On Monday the S&P lost just shy of 8 points and net breadth was negative 1,890 on the day. If we added the two days up we'd get the S&P up 10 and net breadth down fractionally. So the divergences continue.

But I will note that, while sentiment is not super-bearish, it is definitely not giddy, either. Just about a week ago I discussed the 21-day moving average of the ISE's equity call-put ratio and how it had failed to budge, which I viewed as a negative. However, in the last few days it has not only moved -- it has started surging. ...


Crawling With Negative Divergences

Mon, 25 Jul 2011 11:00 GMT

I realize we are all wrapped up in the Great Debt Debate taking place in Washington. As I write this on Sunday morning, there is much discussion of whether some sort of deal will be cobbled together by the time the markets open. So I am going to do my best and forget the news, forget Washington (not easy to do!) and simply review the statistics and indicators.

I do not know how the markets might react to "no deal." On Friday I watched as the headlines stated the deal was off, and the S&P 500 managed a decline of about 5 points before it decided it didn't care very much and rallied anyway.

Here's what we do know. The market will likely be overbought later this week, possibly early next week. The date for the oscillator I calculate is not terribly clear right now. The Nasdaq momentum indicator, however is set to become overbought again Friday. ...


Rooting for a Down Day

Fri, 22 Jul 2011 10:59 GMT

Two days ago, The Wall Street Journal briefly mentioned the head-and-shoulders top in the S&P 500, as well as the supposed island reversal (which I still do not see on the chart!). We know that if they've seen it, everyone has. Last week I wrote a column about the potential for a both a head-and-shoulders top and bottom. At the time, I believe I received one email about the bottom; fast-forward to Thursday, and my inbox was filled with folks inquiring about it. If you ever want to understand how sentiment works, that about sums it up. As for these head-and-shoulders patterns, both the top and the bottom are still present.

Turning to the market's rally on Thursday, the same potential negative divergences are in place. The number of stocks making new highs is still lagging, breadth is still mediocre and net volume lags as well. Total volume picked up nicely, though so I would at least consider that a plus for the market.

Back on the sentiment front, we have now seen three days in a row with an index put-call ratio under 100%. Since the year 2000 this has happened only seven times: three in the year 2000 and four between November 2008 and March 2009. Those were all volatile times, and I do not view this current period as so quite so volatile, but it's clear that all the ups and downs over the past two months have created this situation. ...


Not Yet Overbought

Thu, 21 Jul 2011 11:00 GMT

I saw a research note on Wednesday saying that a poll of their clients Tuesday revealed that more than two-thirds of them were bullish and expected the market to be up by year-end. I was dying to ask this firm if they believe it had something to do with the market's action Tuesday -- and whether it would have been so bullish if the poll was taken Monday! I suspect not, especially based on the put-call ratios we discussed in Tuesday's column.

Speaking of the put-call ratio, the Index put-call was under 100% on Wednesday. That makes two days in a row with readings under 100%. I went all the way back to the year 2000 and discovered we saw 14 other instances with back-to-back low readings like this. The market did not always go down the next day -- once it took four days of churning before the fall. Once stocks didn't dip more than a smidge. This latter time was in December of 2009, with the Fed's quantitative easing at our backs. However, all the other 13 times, we did eventually see some downside.

Staying with the sentiment theme, the Investors Intelligence readings showed only 21.5% bears. I was quite surprised it was this low, considering that Tuesday would not have been included in that survey. As a reminder, readings under 20% are bearish for the market, so if we get even one person who changes their view to become more bullish in next week's survey, we'll likely see a reading close to that 20% area. ...


Jumping the Gun

Wed, 20 Jul 2011 11:00 GMT

I hate when the market jumps the gun and starts an oversold rally a day early. You might recall a day-early move in early June -- of an overbought decline. But I suppose I should be thrilled that at least we're seeing an oversold rally.

Before I join the chorus of bulls, I would like to point out a few statistics from both Monday and Tuesday's trading. If we combine the S&P 500 action for the two days, we get an up move of approximately 10 points -- but the NYSE's breadth came to a loss of around 350 issues. That tells us breadth wasn't so hot during Tuesday's rally.

What is a bit more curious to me is that, for what has seemed like forever, breadth has led or at least kept up with the market averages -- so this is a minor change. Notice how, on the chart, the rally in early July took breadth to a new high while the S&P fell short of its April high. Yet breadth now has a lot further to climb than does the S&P before it can get back to a higher high. This is only two days so far, but it is a change from what we have been witnessing. ...


A Too-Exclusive Party

Tue, 19 Jul 2011 11:00 GMT

During the early 1970s, folks didn't call the stock market a bubble. They called it the "Nifty Fifty" -- because there were a handful of stocks that just went up every day. Everything else languished.

That's exactly what I thought of as I watched the tape action on Monday. There was Apple , and there was everything else. Oh sure, there were some other Nifty names that joined Apple's party, but it was a pretty exclusive one, as most other members of the stock trading community clearly did not get the invite.

In reality, very little hard selling that took place Monday, but there was plenty of closet selling. The easiest way I can show you this is through the number of stocks making new lows on the NYSE -- this number nearly doubled from Friday. What's more, the reading of 95 new lows is now dangerously close to the 114 new lows we saw in mid-June, when the S&P 500 was trading 50 points lower. ...

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Expect a Dip Into August

Mon, 18 Jul 2011 11:00 GMT

In Friday's column, I laid out the case for an oversold rally in the short term. The reasoning was -- and still is -- that the oscillator will be oversold shortly, and the same goes for the Nasdaq momentum indicator. At the same time, the S&P 500 support area of 1310 should see a bounce the first time down there.

Sentiment was also a factor in coming up with this view. The put-call ratio has seen readings over 100% for eight of the last nine trading days. On an anecdotal level, as I noted early Friday morning, my mother -- who tends to be a great contrary indicator -- called Thursday evening in a panic. She was worried that, if the debt ceiling weren't raised, that the U.S. would default and the market would crash. If my mother is repeating this for me, then it is likely anyone watching the evening news in the U.S. has had this drummed into their head as well. As such, Friday's University of Michigan Consumer Sentiment survey should be no surprise to us.

However, in the intermediate term I believe the oversold rally will fail. So I thought I would take the time today to explain why it is I believe that stocks are likely to come down again in late July and early August. ...


Don't Put Much Stock in the Next Rally

Fri, 15 Jul 2011 11:00 GMT

Was it just a week ago that the employment number came out and the market rally was turned on its head? For the better part of the week leading up to that data, I noted the overbought condition of the market, and it was my belief that stocks were likely to back off and rally again. That second prediction is looking a bit dicey at the moment, but let's take a look at what might transpire.

As I have noted, the 30-day moving average of the advance-decline line is now oversold, but the oscillator I use is not and will not read as oversold until later next week. As for the Nasdaq momentum indicator, that indicator will be oversold around this coming Wednesday. As a reminder, on this chart I plug in "what-ifs" to see when the indicator will halt its current slide if the Nasdaq continues to decline day by day.



Stunning Intraday Volatility

Thu, 14 Jul 2011 11:00 GMT

When I lived in Asia, I would try my hardest to stay awake for the entire trading session, but more often than not I found myself falling asleep on the sofa in my office. Usually, when I woke up, there was some time left before the U.S. markets closed -- but sometimes I would not. When there is a 12- or 13-hour time difference, it happens a lot.

I thought of this after the action on Tuesday and Wednesday this week. If I had fallen asleep on either day, I would have thought the market had traded flat all day. Yet these two days might have produced the most intraday volatility we have seen in quite some time.

I realize Wednesday's trading was an awful day for the bulls, so let's just look at some of the statistics to see if we can put it in perspective. In these two days the S&P 500 has lost about 1.75 points. Breadth has gained about 500 issues, and net volume is flat. So, we would have to say breadth is in line with the index. ...


A Pair of Head-and-Shoulders Formations

Wed, 13 Jul 2011 11:00 GMT

Was the Federal Open Market Committee really discussing a third round of quantitative easing when QE 2 hadn't even ended yet? I don't know how you spin that bullishly in any manner, but I am certain the bulls will find a way.

Let's talk about the head-and-shoulders pattern in the market -- though, actually, the first question that should come to mind is which one we're talking about. For the S&P 500, there is a potential head-and-shoulders top and a potential head-and-shoulders bottom in the works.

Here is the very obvious head-and-shoulders top that I first noted here more than a week ago. The S&P would not even get to the neckline for about another 50 points. ...


Nowhere Close to Oversold

Tue, 12 Jul 2011 11:00 GMT

For the past two years, the majority of times the market got overbought, it didn't decline very much. Perhaps it was the Fed's quantitative easing that helped keep stocks from moving down hard when it was overbought -- but, for now, QE is no longer with us. As such, the market actually moves when it gets overbought.

Which brings me to the oscillator. It is not anywhere close to being oversold. Stocks just got overbought, so it would have been difficult to get back to an oversold condition after just two down days. The short term oscillator will be back to oversold sometime next week, so there is plenty of time there. The 30-day moving average of the advance-decline line will be back toward somewhat oversold around Thursday of this week. In other words, we've got some time before the market gets oversold again.



Island Reversal Is a Mirage

Mon, 11 Jul 2011 11:00 GMT

I am sure the bulls will be emboldened by Friday's action -- given the horrible employment number, the market actually acted quite well. I am sure the bears will also be emboldened, as well, though, as their view of a weak economy was reinforced with that economic data.

In fact, we can even see the tug-of-war taking place between those who believe Friday's action in the SPDR S&P 500 looks like an island reversal. Let me first note that it's quite rare to see islands in the market indices. Also, allow me to emphasize that an island does not connect with the mainland at any point; it has water all around it.

Since the SPY low on Thursday was $134.88 and the high on Friday was $135.35, I don't see how that can be an island. Clearly Friday's high was higher than Thursday's low, so there is no "water" between the two readings -- no gap. If an island has water all around it, then how can this be an island? I am open to the other side's argument. ...

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A Breather on Bearishness

Fri, 08 Jul 2011 11:00 GMT

I will not say market players got giddy in Thursday's move, but they did back off some of the persistent bearishness of which we've seen so much lately. While I would not consider a put-call ratio of 85% low (it is more neutral) it is the lowest reading since June 27, just before the rally began.

While I am on the subject of sentiment, I happened to notice that -- for all the hoopla in the market -- the CBOE Market Volatility Index (VIX) hasn't made a lower low. As long time readers are aware, I believe the best use of the VIX is when it gets jumpy, as it did in June, rather than when it is low. Still, the higher low caught my eye.

The number of stocks making new highs expanded beyond where it has been hovering, but is still below the spring readings. This is not so much a concern for the NYSE, since the S&P 500 is still below its spring peak. But, over in the Nasdaq, where so much of the fireworks has been, there were 227 new highs vs. 250 in May, and 286 prior to that. I will grant you that Nasdaq did not close at a higher high than its May peak; but, at just 1 point shy, I don't believe I'm stretching it to say this indicator hasn't achieved the previous readings. ...


Maximum-Overbought in Our Sights

Thu, 07 Jul 2011 11:01 GMT

In Wednesday's column, I discussed the overbought condition of the market, so let's remember something important about overbought readings (and oversold ones, as well). A market can get overbought or oversold -- and stay there.

You might recall that, leading up to June 13, there were several times when I mentioned the market would reach a maximum-oversold reading on that very date. First of all, the market did not make the low until June 16 -- and, second, the rallies from that latter date until last week all struggled. But, lo and behold, this eventually mattered when stocks skyrocketed last week. So, the simple fact that the market doesn't immediately roll over from the overbought condition doesn't mean it won't pullback.

I have noted that I thought the current overbought condition was not a case of maximum overbought but, rather, a moderate reading. However, I do believe the overbought reading that will develop between Friday and Tuesday will be more indicative of a maximum-overbought condition. ...