Good Luck Getting Stocks to Play Together

 | Jul 11, 2017 | 6:00 AM EDT
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Have you ever watched a roomful of little kids who are asked to play together? The first thing they do is shuffle off into little groups. Unless there is a leader herding them all together asking them to be nice to each other, the inevitable happens: Smaller groups form.

That's what the stock market is like. A bunch of small groups that simply cannot play together. A few get together in this corner and do their own thing, a few in that corner do their own thing, but somehow the entire roomful of kids cannot get themselves together in a cohesive way without a real leader. And right now we don't have a leader.

Oh sure, some will say the FANGs are leaders. Well, leaders lead, they gather the herd together, they do not go off on their own and leave everyone else behind. To me, FANGs (and by extension, technology) are their own little group. They don't pick on other groups, so they are not "mean" kids or bullies, but they can't seem to open up their circle and invite the others in to play with them.

The result is that when they -- the FANGs, or "cool kids" -- rally, almost everything else stands by like a wallflower watching the party from afar. Do you realize the S&P is up 1% since early March? That's four months of nothing. The Russell 2000 is flat since Feb. 15 (and up 1% since early December). That too is a whole lot of wallflower action.

Monday was no different. For example, the net volume for Nasdaq was +100 million shares -- on a day that Nasdaq rallied 23 points. In fact, if we add up the last three trading days, we find that Nasdaq is up about 25 points and net volume is negative by about 400 million shares. That's an awful lot of wallflowers.

So overall breadth makes new highs, or is milling around near the highs -- that's the cumulative advance/decline line. At least it hasn't made a lower low yet.

But compare that to the McClellan Summation Index, which is like the third derivative of the advance/decline line. It can't get off the mat. It will still require a reading of +800 million (net of advancers minus decliners) to halt the current slide.

So if you're wondering why it seems that stocks rally a day or two and then give it back or they sell off for a day or two and then rally, it's because they do. This chart of the Summation Index tells us the groups of kids are simply not playing together. They need a leader. Who will step up?

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

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