And Now, Suddenly, The Market's Technicals Are Looking Way Better

For the technically inclined, Mike O’Rourke of BTIG offers:

The last area of the day we would like to highlight are the technicals.  For the past couple of months, the market has been widely influenced by the technical picture.  The simple fact is that from a technical perspective, things have been pretty ugly.  The only technical factor flashing a buy signal was sentiment, and that is because it was so poor.  Finally, there are several technicals showing positive signs.  First, the latest AAII posted a reading of 41.66% bullish, just above the buy threshold of 40%.  It is not a buy signal in and of itself, but it is a good sign.  Today the Dow Transports closed above both their 50 and 200 day moving averages for the first time in over a month.  The Transports also took out their most recent high recorded last week, Dow Theorists will be looking to see if the Dow Industrials confirm the move in coming sessions.  The S&P 500 appears to have formed a small Head & Shoulders bottom with the 1100 resistance level as the neckline.  One only needs to look at the trading action since May to realise how important 1100 is.  In addition, several S&P 500 sectors are creating the similar Head & Shoulders bottoms patterns, although some are further along than others.  Industrials and Materials are the furthest along, but Financials and Health Care also have potential.  Additionally, keep an eye on the Energy sector.  Crude has held the $70 level for the past year and now Energy equities are oversold as the problems in the Gulf move closer to resolution and Commodities appear to be heating up.  We like to watch the Continuous Commodity Index (the old CRB) because it is equally weighted and thus a better measure of broad Commodity action.  The CCI appears to be in breakout mode above the 480 resistance level, where it has been capped for 6 months.  This is notable because this is occurring in an environment where deflation fears are elevated and the 10 year treasury yield is below 3%.  This divergence should not last too long and either bonds or commodities should sell off.  Seeing who wins the tug of war should provide a dynamic view on the markets perceptions of the double dip – recovery debate.

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