From Crypto Garbage to Penny Stocks, Speculation Has Run Amok
The unusual action happening on the Nasdaq is not what I would call long-term bullish. And the speculation is veering into options land too.
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It’s been a few weeks since I have written about the speculation in the market but since the Nasdaq clocked in its highest volume ever on Tuesday I felt it was time to revisit this subject.
Typically, if we see such a high volume day on the Nasdaq and we see the index lose 375 points I’d think, "okay that is bullish." I love a high volume selloff, especially in the QQQs. But that is not what Tuesday was. You see, upside volume was 65% of the volume on the Nasdaq.
How can that be? Especially when Beloved Nvidia NVDA traded its highest volume in months and it traded to the downside. The Nasdaq has gone from crypto garbage speculation to penny stock speculation. And I don’t mean stocks under $5. I mean stocks trading at a nickel. Or less.
The Nasdaq traded 13.5 billion shares on Tuesday. About half of that volume — at least half, because I couldn’t take the time to go through the whole list — was in stocks that trade under one dollar. Think about that for a minute. There was a time these stocks would trade on the pink sheets so we wouldn’t be counting them in the Nasdaq volume but here we are.
That means that for the last 10 trading days up volume has been higher than down volume on the Nasdaq. Yet the Nasdaq is flat as a pancake over that same time period. Ten straight days of net volume being positive is unusual on its own, it is beyond unusual when the index itself is flat.
The McClellan Summation Index, using volume for the Nasdaq, has been rising steadily since early October. That’s a far cry from what we’ve seen in the NYSE's more traditional Summation Index since that peaked in early October. So while the majority of stocks are going down on the NYSE speculation has run amok on Nasdaq.
But now the Nasdaq needs a net differential of -6.4 billion shares (up minus down volume) to halt the rise. You can see that is closing in on what we’d say is overbought.
It’s not as though the speculation stops at the stocks themselves. It veers right into options land as well. Remember last Thursday when folks got concerned and bought puts and we saw the put/call ratio surge to 1.04, the highest reading in months? There was none of that on Tuesday. Tuesday’s put/call ratio was 0.78, the lowest since the day after Christmas.
But let’s look at the ISE call/put ratio to really see it. That spike is almost as high as it was in 2006, during the height of the housing bubble. Notice the 21-day moving average has finally ticked down (you need to squint to see it).
My view on the market hasn’t changed as I would still like to see a back-off (Tuesday was a good start) to get us to that oversold condition I have discussed these last few days, but this speculation run amok is not what I would call long-term bullish action.
Finally, I was disappointed not to see non-stop chatter about rates on Tuesday but we did see the Daily Sentiment Indicator (DSI) get to 10 for the bonds. That puts them at an interesting juncture with the Employment report on Friday.
