Well we finally got the kind of rally I'd been looking for -- one that didn't die midday. If I had to complain about one factor, it would be that the Russell 2000 lagged in a big way. You see, when something is so obviously failing to confirm the larger move in the market, too many folks tend to notice it. As longtime readers know, I prefer that old adage, "If it looks great, it's too late" -- and we did not have that with the Russell lag.
Thursday was also the first time the Russell has underperformed the S&P 500 since late December. We'll have to see if there is any follow-through here -- but, as you can see, when the ratio ticks up from this area, the S&P tends to be closer to a high than to a low. I had thought the ratio would get under 1.65 on this move, and it has only reached 1.66 so far.
Now let's look at the number of stocks making new highs. Last Wednesday, the first day of the new year, there were 454 new highs, fewer than the 495 we saw in September. Thursday saw just around 300. That is very disappointing, and it is a negative divergence. Even if stocks are able to rally some more in the next few days, I don't believe we'll see the additional 200 stocks at new highs that would be needed to beat out this previous peak reading.
I won't go through all the charts I showed here Thursday, but suffice it to say the 30-day moving average of the advance-decline line is still reading as overbought, and it's now at a lower high. The Volume Indicator is in the same situation, as well, and the moving average of the ISE call-put ratio is rolling over.
Turning to the put-call ratio, on Thursday this number was its lowest level since Dec. 17, when we saw a short-term high in the market. But it was the 70% reading on the index put-call ratio that caught my eye. That was the third consecutive day under 100%, and the lowest level since just after the Thanksgiving-week rally.
On a shorter-term basis, on Thursday I also said I expected the Oscillator would be overbought early next week -- and that is still the case. Now we also have the Nasdaq Momentum Indicator showing an upcoming overbought reading. In situations like these, I implement a "what-if" exercise in order to see what it would take to turn down the indicator, and in this case I've plugged in up days for the Nasdaq for the next eight sessions. You can see the Momentum Indicator is set to peak Friday.
In sum, based on these indicators, I am looking for the market to pull back next week.