The Pick-up in Stocks Making New Lows Should Be Concerning

 | Jul 10, 2017 | 6:00 AM EDT
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Stock quotes in this article:

QQQ

,

IWM

You see? I wanted the QQQs -- the PowerShares QQQ ETF (QQQ) -- to break down and give us a whoosh, and so they did not. Of course they rallied. There was something of interest, though, in the action on Friday.

The day began with the small caps lagging in a major way. Here was Nasdaq, up nearly 50 points, and the Russell was barely up three points. But as the day wore on, Nasdaq mostly milled around at the highs and the small-caps improved. They improved so much so that by the end of the day the (IWM) /QQQ ratio was flat. It remains my view that this ratio should pull back and rally again. Last week saw the pullback, so Friday's action was of great interest to me.

The other thing that happened was the Transports made a new high. There will be many who will want to pin this as bullish. Well, if you didn't pin it as bearish when they sagged most of the year, then you should simply be quiet about whether it is bullish or bearish for the overall market. I view it as bullish for Transports.

Away from that, we saw breadth not nearly as bullish as it should have been on Friday (considering the Russell 2000 rallied a bit more than 1%). But overall, breadth has not been persistently weak (not yet, at least). What should be concerning is that the McClellan Summation Index peaked (after bottoming in mid-May) three weeks ago, and has not been able to recapture that high. It now needs a net differential of +800 advancers minus decliners to halt the decline. And obviously it needs more than that to turn it back up. To put it in perspective, Friday's rally gave a +1120, so we'd need another day like that.

What should be concerning is the pick-up in stocks making new lows. Friday's reading of 72 on the NYSE was the highest it has been since mid-June, when we saw 120 new lows.

So we have breadth muddling along. We have new lows picking up. We have the S&P at essentially the same price it has been for months. And we have sentiment complacent.

Then we have the improvement in the Transports and the IWM/QQQ ratio not collapsing, but having a minor pullback.

Unless we can get the whoosh I discussed here Friday to clean out the weak hands and get a decent oversold, or unless we can get a massive move to the upside where the number of stocks making new highs explodes and the breadth is strong enough for more than a day or two to turn the Summation Index up with some oomph, then we're in this middle-of-nowhere market where money sloshes from one group to the next and we can't put together a string of up or down days.

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