A Hollow Rally

 | Apr 10, 2014 | 6:35 AM EDT
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Note: Helene Meisler is taking the next few days off. Her next column will be Tuesday, April 15.

At Wednesday's close I heard someone on TV mention that -- given the percentage moves in momentum stocks over the past several days -- when they looked at their screen, they had a flashback to the 2001-to-2002 period. I found this curious given my recent chart comparison with 2000, and in light of the fact that this person is not technically inclined. I suppose many of us have a tendency to remember the decline, but we forget how many steep rallies there were, as well, during that period.

But, being that I rely more on the statistics than on patterns, let's do some quick comparisons in the numbers. On Monday the S&P 500 declined 20 points, and Wednesday saw a 20-point gain, so we can compare apples to apples -- and, on Monday, net volume on the NYSE was off lost 2.4 billion shares, while on Wednesday it was up 1.5 billion shares. That's a loss of about a billion shares on a flat index.

It's not as though the Nasdaq fared any better, either. The index's net loss on Monday was almost 50 points, as compared with a 70-point gain Wednesday. Monday's net volume was down 1.3 billion shares, while Wednesday saw positive volume of 1.4 billion shares. So, even with a gain of 20 points on the index, the net-volume picture is essentially flat.

Speaking of volume, the Nasdaq's total volume was quite light on that 70-point rise. In fact, it was the lightest volume we've seen since March 20 (see arrow on the chart).

But that did not stop folks from getting bullish. On Wednesday, a much-discussed statistic was the above-90% reading on the put-call ratio for three days running. That worked to help Wednesday's rally along, and so did Friday's 17% reading on the put-call ratio of the CBOE Volatility Index (VIX). All of those numbers flipped on Wednesday, and the total put-call ratio sank like a stone to 61%. The last time we saw a reading this low was the day after Christmas, after which the market proceeded to chop for a bit, then took a fall once the calendar turned to 2014.

There was much chatter about how Wednesday's put-call ratio could have been skewed by a large call buyer of iShares MSCI Japan ETF (EWJ). That constitutes rationalizing an indicator, something I don't like to do -- though I'll even acknowledge this might make sense. That trade might also be the reason the put-call ratio on ETFs was a mere 64%.

But, then, what's the excuse for the equity put-call ratio of 45%? If you'll recall, the last several times this has sunk into the 40s, the market has pulled back shortly thereafter. On April 1, for example, we saw a reading of 47%. While the next day had an upward bias, that was about it for the next week, as you know.

It's possible the Federal Reserve's dovish bias will take hold once again, and that these statistics won't make a difference in the market. But, thus far in 2014, they have indeed mattered.



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