Is this the week?

Friday's reversal action was quite positive as volume was on the heavy side.  It was also an "outside day".  That is where the low on the day was lower than the prior day's low, and the high was higher than prior day's high.  Usually a sign that a change in direction may be near.  We had another one a couple weeks ago but that day closed near the low of the day.  Friday we closed near the high...

 Chart provided courtesy of www.decisionpoint.com

We have now had 9 consecutive days with an alternating positive and negative close on the S&P 500.  That is a very are occurrence.  Friday's strong rally will need to follow through today to break that trend. 

The table below shows the only other occurrences in history where breadth (number of stocks up vs. number of stocks down) flip-flopped every day for at least 8 consecutive days. 

Once again I don't want to bore you too much with my reasons for believing we are closing in on a rally.  You've heard it all before.  But today I'll go as far as to say that I believe the S&P 500 has put in the low for the year.  BUT, that does not mean we go straight up for the next six months either.  Like 1994, I think it could be a grind of up and down action where we may want to buy these oversold conditions and sell the overbought.  I am not as confident in the small cap or international stocks.  They may see more volatility and, like in 1994, see lower lows before bottoming.

Let's talk about "smart money" for a minute.  In its most recent release, covering the week ending April 15^th, the NYSE reported that specialists on that exchange accounted for only 15% of all short sales.  Public short sales were 3.7 times greater than short sales from the specialists, an unheard of number.

Specialists are the market makers for companies listed on the NYSE, meaning that they see most of the order flow that comes in, and are responsible for maintaining orderly trading in their stocks.

Because of that responsibility, they have access to tremendous information, something nobody else gets to see.  It’s not surprising, then, that when specialists as a whole take extreme positions one way or the other, the market tends to follow.  If they are leaning one way, then that means the public is leaning the other way, and I would much rather side with the specialists. 

The figures for the week ending April 15^th were so unusual that we’ve never seen another time in history, going back to 1942, that exceeded the current one.  The two readings that come closest were: 

• The week after 9/11:  S&P 500 was +10% one month later
• The week of 08/13/04:  S&P 500 was +6% one month
         
         Above data provided courtesy of www.sentimentrader.com  
  

Oil closed below $50 a barrel for the first time since mid-February, and the dollar has once again played me like a fool.  I have been calling for a longer term bottom forming in the dollar for a few months now but I thought the short term may have seen a drop back down toward the support line near 82.  Instead it has headed back up hurting the 30% I have put in the I fund.  I still believe we are seeing the formation in a longer term bottom in the dollar but the short term can go either way.


                            Charts provided courtesy of www.decisionpoint.com

That's all for today.  I will be out of town tomorrow so I won't be updating the market comments until Wednesday.  Currently 50% C, 20% S, 30% I fund. 

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