Here’s Why You Can’t Predict the Market on News Alone

Let’s talk about the last month in the market.

We’ve seen in the last 30 days the consumer price index come in lower than expected — not once, but twice. We have seen the interest rates on the Ten Year fall from 3.78% to 3.48%. We’ve seen the dollar fall about 3%. And oil has come down ten bucks.

If I gave you that set up on Nov. 15, and said to you that interest rates would fall as would the buck and we’d have a lower than expected CPI and lower energy prices, what would you have thought the S&P 500 would do in that month? I know if given those parameters I would have said the S&P would be higher.

But you see the S&P closed at 3991 on Nov. 15 and it now stands at 3995. This is why I would be terrible if you took away my indicators and gave me just the news.

So, while I see the bulls praising how the market could have been a lot worse on Wednesday after the Fed meeting, I would counter all that supposed good news in the last month hasn’t helped much, has it? Did I mention the Russell 2000 is down 4% in that month? Keep in mind in November it started what is supposed to be its best six months of the year, according to seasonality.

So where do the indicators stand? The Oscillator has come down quite a bit. If we can get the market down for the next few days — in this chop-fest that might be a big ask — then we’d be short-term oversold enough for another short-term rally next week.

But the intermediate-term oscillator is not oversold. The Volume Indicator, which reached an overbought reading of 56% right around Thanksgiving now sits at 50%, which is not oversold. The mid-40s is oversold. The only way I know to get it down there is to get the market to come down.

The McClellan Summation Index is hanging tough in that the Russell is down 4% but the Summation Index, while heading down, has not given up that much.

The number of stocks making new highs has not improved at all. The number of new lows hovers at relatively high numbers. I’m watching the New York Stock Exchange quite closely because Wednesday’s market saw 92 new lows. If that starts to creep up over 100 on a regular basis the 10-day moving average will start to accelerate upward.

One final note on sentiment. I know folks seem obsessed with the 37 weeks (likely 38 after we get the data on Thursday) that the American Association of Individual Investor survey has had more bears than bulls, but I ask you to consider that the Investors Intelligence bulls are at 43% and the bears are at 31%. And last week’s NAAIM Exposure still showed a relatively high exposure (over 50). So maybe it’s the AAII that is the outlier right now.