What Has the Market Done for Us Oscillately?

 | Jun 08, 2017 | 6:00 AM EDT
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As I have indicated for the last several days, something weird is going on with volume in the market. For eight of the last nine trading days, net volume on the NYSE has been red. That is highly unusual when you consider the indexes are up marginally in that time.

Take a look at the chart of the Russell 2000 and let me point out that the day with the green arrow is the only one in the last nine trading days that net volume -- that's up minus down volume -- has been positive. I think that's odd. I hope you do as well.

In that same time period, the Russell is up about 1%. I wish I had a proper explanation as to why, but I do not. In that same timeframe, the net gain for the advance/decline line is +830 issues. At least that is positive, but quite frankly, with the Russell up 1% wouldn't you expect net breadth to be more than +830? I would.

But you see, there's more to this story. Each day I calculate the upside volume as a percentage of total volume. For the last two weeks, it's mostly been negative. I like to plot this upside volume percentage on a 30-day moving average. Longtime readers know that when the moving average pushes down to the low 40s, the market is oversold. When it pushes up to the upper 50s, it is overbought. It really does oscillate, as you can see on the chart.

Yet for the last two weeks, this indicator has been either side of 50%. It has had no correlation whatsoever to the rally in the market. And what's more, look at that series of lower highs it's seen since January. Every year, we've managed to see this indicator push into the upper 50s, but not this year.

I am all ears if anyone can explain why upside volume is so pathetic in 2017. It's as if something changed drastically in this calendar year.

In any event, since the Overbought/Oversold Oscillator is based on the prior 10 days of breadth, there is a lot of red to be dropped going forward. It is highly unusual for us to be staring at an upcoming oversold condition when we haven't even seen the market back off or have a one-day whack. If we use the volume numbers instead of the advance/decline line, you can see the list of numbers we're dropping beginning Thursday.

There is quite a bit of red. And that would make us oversold next week, at least using this particular metric. Using the advance/decline line, it's not quite so "red" in the numbers we will drop going forward. If we can get a whack in the next few days, I would be fine to call this an oversold condition. If we don't, I think I would be more likely to call it deterioration.

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