Current Observations - Feb 3rd, 2015

One of the most fascinating traits of the stock market is that every day we're treated with a fresh set of data to consider.  It's always dynamic, never static.  Yet some days are certainly more memorable than others.  Yesterday's market saw its fair share of action.  The S&P 500 started the day by testing the lower end of the range and support zones highlighted in the chart below.  Price broke below the January lows before staging another solid upside reversal and potentially laying the groundwork for yet another V-bottom. The index was able to hold above the December lows and its 200 day moving average.  This market remains in a decidedly choppy range, forcing active investors to exercise extreme caution in regard to time frames and deployment of cash.  Currently, the most success is being found with day trading strategies.

One measure that continues to give us pause is the ongoing deterioration in breadth.  For this upside move to have staying power we'd like to see more participation.  Right now the % of stocks above their 50 day moving average continues to lag. As does the % of stocks above their 200 day MA.  More and more stocks have lost momentum as the sideways/volatile action has dominated the market the last few months. 

One interesting bullish pattern that has emerged is the potential for a bottom in oil.  For the first time since September, Crude Oil has rallied above its 20 day moving average.  Last Thursday, Crude hit a new low only to have a massive 8% reversal to the upside on Friday.  Crude closed at the high of the day and above the 20 day moving average.  The last 2 days have seen momentum carry price higher establishing a short term bottom for now.  We'll be watching closely to see if this move higher can be sustained and a real bottom has been made.