Russell Is Nothing to Crow About

 | Mar 07, 2017 | 6:00 AM EST
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Despite Monday's afternoon rally and the fact that selling dried up midmorning, folks began to notice the market action hasn't been so hot. I could see it in the commentary, most notably as if folks woke up and finally noticed that the Russell 2000 is actually down 1% in the last two weeks.

That might not sound like a big deal until you realize in that same time the S&P is up 2%. That makes for quite a difference. For quite some time, I have noted that the Russell has been underperforming since mid-December. Few seemed to care. For some reason, it caught their attention Monday.

The ratio I don't see folks fussing over is another I have noted here, that of the S&P to the Nasdaq. In Monday morning's column, I called it the "Dow and S&P rally." Notice I did not include Nasdaq in that group. That's because it has lagged -- since mid-February. At some point, folks will realize that beloved Nasdaq has begun to sit the rally out as well.

The lack of participation was most notable in the number of stocks making new highs and new lows. The new highs have not come close to the December reading -- not once. That shows a narrowing of the rally. Late last week, the number of stocks making new lows picked up as well. But on Monday, for the first time since before the election, there were more stocks making new lows than new highs. I would love to spin that as bullish, but I cannot. That just should not be.

But let me throw a monkey wrench into this. All this market weakness in the last two or three weeks has pulled the oscillator down. You can't have Nasdaq's breadth negative for seven of the last 10 days and think it won't have an effect. It has.

There are a few things to notice. It is heading to an oversold condition. That's what happens when there has been this much selling. But notice also that it is now at a lower low than it has been since the election. That shows a weakening of momentum, for Nasdaq and the small-caps.

The NYSE hasn't shown quite that much weakness on a relative basis, but you can see it's been pretty weak on the breadth front as well. So while the NYSE's oscillator appears to be getting oversold, the math behind the indicator is not saying that. Not yet.

Then there is the 10-day moving average of the put/call ratio. It has ticked up. When it last occurred from this level in mid-December, the S&P went sideways for six weeks. But back then breadth was strong and we were much earlier in the rally.

So yes, we are heading to an oversold condition, but the generals are leading with no troops behind them. That typically resolves to the downside at some point.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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