Charts of the Week: Friday, July 27, 2012

The correction has been in process now, since that peak in the overbought/oversold oscillators of two weeks ago, but "most" times we see the orange line - the 21-day oscillator - in the chart below move down to at least the -50 line before the correction is satisfied.

Behind the scenes, we've seen a massive change in the personality of the stock market since May of last year, before that 2011 correction in which economic concerns, the budget deficit, the political polarization, and the European crisis came to the forefront of investor concerns.  Those concerns are still very much festering.

Take a look at the pattern of the S&P 100 versus the S&P 400 since May 2011 in the chart below.

The S&P 100 has outperformed the mid-cap S&P 400 index by 12% since last May (26th).  Does this trend suggest a return to the mean, or is it due to the fact that stocks in the S&P 100 offer the liquidity sought after by big international investors searching for the safest haven to put their big wad of cash to use here in the US?  Will we see much of the same action until the public comes back to investing?

We'll leave you with those questions to ponder for the weekend.

Don Hays

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