A Little Improvement In the Indicators on a Day Nobody Was Watching
What could be next, however, is a bout of volatility.
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I know you’ve been waiting for the indicators to change. No one wants the same thing every single day. But we can’t force these issues. The same way we could not force the market to give us that 90% down volume day in April. We kept waiting, and we’d get 87% or 88%, but we did not get 90% until the market finally chose to panic.
For the last week, the market has done mostly nothing. Oh, sure, the S&P is up about one percent, but Nasdaq is flat, as is the Russell. The Bank Index is flat, as is the SOX. They have taken a rest after that torrid rise last Monday, May 12th. But have the indicators changed?
I am here to tell you today there was some minor movement on Tuesday. The Nasdaq Hi-Lo indicator, which has been barely inching upward, finally pushed over that high from a week ago. So, at least we won’t have that short-term negative divergence when we get intermediate-term overbought later this week.
The number of stocks making new highs on the NYSE could push over 100 in the next few days. That would be another minor change. Oh sure, it’s not great in the big picture, with the S&P knocking on the door of 6000 and there just over 100 stocks making new highs, but at least it would show an increase vs what we’ve seen for the last few months.
Then there is the McClellan Summation Index, which I use for breadth. It has been rising; it is still rising. We entered this week with that indicator needing a net differential of -2500 advancers minus decliners on the NYSE to halt the rise. I consider that a very good cushion, meaning if we have a few down days, the indicator should continue to rise.
After Tuesday’s action, that cushion is down to approximately -700. Once we get under -1000, I no longer consider it a good cushion because one harsh down day can halt the rise.
To put that in perspective, last Wednesday the net breadth on the NYSE was -930, and it wasn’t really a big down day. So while the Summation Index is still rising (bullish) the cushion has shrunk. This will be important to pay attention to in the coming days and into next week.
We have looked at the put/call ratio’s ten-day moving average a few times recently. Today, I want to look at the equity put/call ratio’s ten-day moving average. It is heading into the area that has tended to say ‘too much’ in the last three years.
I would like to see the market rally into the end of the week so we can see if the breadth does roll over or if it saves itself. If the Summation Index rolls over in the next couple of weeks, I think it sets us up for a volatile June.
