Nasdaq Down While Russell Hits a New High? This Is Ridiculous

 | Jun 12, 2017 | 6:00 AM EDT
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Friday's action was certainly not typical. Sure, I expected the Russell to outperform Nasdaq, but this type of action was not what I expected. I mean, Nasdaq down over a hundred points while the Russell makes a new high is as ridiculous as it was in May, when Nasdaq went up every day and the Russell went down.

In terms of absolute performance I am not sure I have seen that sort of divergence before, but in terms of relative performance the move was almost the same (but inversely) as we saw in early January when the PowerShares QQQ ETF (QQQ) began its run up and the iShares Russell 2000 (IWM) began its lagging.

Does it last? I had said last week that I thought it could last a week or two, so I will stick with that view. But I can also tell you that I believe this type of action is not any healthier than the action we saw leading up to it, when all the upside action was in the Favored Few.

For the last week or so, I have noted the negative net volume on the NYSE and how unusual it is for the market to rise while we see that. Friday we saw net volume solidly positive, while the S&P barely budged to the downside. Neither is overall positive for the market. Sure, we've seen group rotation, but the violence with which we've seen it is atypical.

The volume in the QQQs on Friday was just over 100 million shares, the highest since the mini-crash of August 2015. There are many differences between August 2015 and now, so let me point them out. In 2015 the high volume arrived on the fourth day down; now it was on day one. In 2015, the QQQs were falling from a lower high, whereas Friday they were at the high in the morning.

We saw high volume (but not this high) in mid-May, too. I wrote about it and noted that high volume declines in the QQQ tend to be bullish, or at least lead to rebounds. This decline also looks different than that one.

In mid-May, everything went down together; breadth on the NYSE was -1750 issues, whereas Friday it was +750 issues. In mid-May, the VIX flew upward. Friday, it closed the day just over 10. But a high- volume decline should lead to a rebound.

The bulls will point out that the uptrend line for the QQQs remains intact.

And the VIX for the Nasdaq 100 has soared (getting jumpy).

My guess is, even though we should see some sort of rebound, the volatility is most likely to be on the rise now. Do not expect to see summer doldrums!



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