Cisco Is Today's Test
By Helene Meisler

11/5/2009 9:00 AM EST



Well, would you look at that. Once again the good news gets sold. I don't know about you, but I kinda liked it better when all we had was bad news or "less bad" news, and they only took the market up. Now that we get good news after good news, all they do is sell.

Can you imagine if the Fed actually changed the language and said they might even consider taking away the punch bowl? Oh my.

And isn't this the first time since the lows that we had an oversold market that doesn't seem to be able to just zoom on ahead? I think that has to do with the lower lows in the indicators. As I've explained several times of late, the lower lows mean we have been losing momentum for some time. At some point (I expect in mid-November), we ought to be overbought enough to come down and have that potential retest, a retest that would give us a potential higher low in the indicators.

Of course, we need to rally first before we can have a retest.

While it is hard to come up with a host of positives in yesterday's market, I would note that the new highs on both the NYSE and the Nasdaq increased. In fact, it was the first time in over a week that Nasdaq actually had more new highs than new lows.

Now, I know everyone will be excited over the Cisco (CSCO) earnings and there is sure to be a lovefest with CEO John Chambers -- there always is -- but to me this will be a test for the market. Will it once again sell the good news (as has been the case since the second week of October) or will we see the good news get bought?

Keep in mind Intel (INTC) had a rosy outlook. So did Apple (AAPL) . So did Google (GOOG) . So did Goldman Sachs (GS) . All the faves had rosy reports and rosy outlooks. And yet the market got sold almost every time. Back then only a few were talking about how the news was getting sold; now it seems to be a bit more commonplace. That's why I call it a test. If everyone now knows that the good news is getting sold, then what if the good news doesn't get sold?

Now the good news for the bears is that we have yet to hear a ton of chatter about the potential head-and-shoulders top in the S&P. I suspect if we fall in the next couple of days, the chart pattern will be shown anywhere and everywhere. And then it will turn into good news for the bulls.

Remember -- when no one sees the pattern, it works; when everyone sees it, it tends not to work. You do remember July, don't you?



So for now, we continue in an oversold condition. We await the oversold rally that will lift the indicators off their lower lows so that they can come down to higher lows.