Curious Behavior for a Market at its Highs

 | Oct 29, 2013 | 6:30 AM EDT
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If you thought I would go one day without mentioning the Nasdaq's volume, you're mistaken! But this time I want to discuss it from a different angle.

This index's volume ratio has been so poor of late that something rather curious has occurred. The Arms Index (TRIN) for the Nasdaq has registered above 1.0 for five trading days in a row. Readers might recall that, in the past year or so, I've highlighted this statistic when such a streak has reached six sessions in a row. Since July 2012, this has occurred three times, and we saw one five-day streak.

I think the chart is rather interesting, because these streaks tend to result in a rally -- yet it's often a short-lived one. The only time the resultant rally wasn't short-lived was this past March. On the chart below, you can see point A from July of 2012, with the lovely oversold rally that followed. Notice that the index came right back down.

Point B is early September 2012. Again, a lovely oversold rally came -- and then, as you can see, down the Nasdaq went. Point C showed up in the middle of the downtrend, and this oversold rally lasted for two days before the downtrend resumed. Point D showed up near the end of a correction and essentially saw the launch a new move higher.

What's most curious to me is that I have not encountered any other instance when such a high TRIN, persisting for days on end, was accompanied by a market still at the highs. Look at the above chart again. In all of those examples, the Nasdaq had at least gone sideways or down for a number of days -- so it had made sense that the TRIN had registered at a high level for a number of days.

With the end of the month coming, and with the Federal Reserve rate decision Wednesday, perhaps it's possible we'll see some sort of one-day oversold rally. But here, again, this would constitute another negative divergence. Would you be surprised to know that the Russell 2000 has actually been in the red for four out of the last six trading days? It has. Oh, sure, some of those red days were by such small fractions as to be meaningless, but why isn't anyone fussing over this action the way they usually do? Has everyone become so complacent as to not care?

In terms of complacency, Bloggers Sentiment is now at nearly 60% bulls. That reading is its highest since the September 2012 high in the S&P 500. What was amazing about that time is that the Fed had literally just announced "quantitative easing forever," and the S&P still managed to sell off by nearly 10%.

The bottom line is that there is selling going on, or maybe it's a lack of buying. The Nasdaq is trading a mere 20 points higher than its closing level on the day Google (GOOG) surprised us with an earnings jump. The Russell 2000 has risen a whopping 3 points since then. So it may be that the indices are no longer going down but, at the very least, they have certainly stalled.



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