Glaringly Poor Statistics

 | Dec 18, 2012 | 7:15 AM EST
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In Monday's column I laid out the case for a head-and-shoulders top to take hold after we turn the calendar into January. However, I noted that the market was not yet overbought, and that I expected some sort of oversold rally to develop this week for year-end. So I think it's too soon for me to do much complaining -- yet some of the statistics in Monday's rally were so glaring that I cannot sit quiet.

Let us begin with the number of stocks making new highs. If I thought they made for poor reading before Monday's rally, things didn't change much with Monday's climb. Here is the progression: On Nov. 29 the S&P 500 closed at 1416 with 163 new highs. Dec. 3 saw a higher intraday high than on Nov. 29, and new highs lagged with 149. Last week, on Dec. 11 and Dec. 12, the S&P closed at 1427 and 1428 respectively with 125 and 122 stocks at new highs, respectively. I think you can see the progression of higher highs in the S&P and fewer new highs in stocks.

I'll bet you, like me, expected a decent increase in new highs during Monday's rally. If so, you would have been disappointed, since there were a mere 79 stocks at new highs to coincide with it. That is half of what we saw Nov. 29, when the S&P was 14 points lower. If this statistic doesn't improve soon, these negative divergences will matter when the market is overbought again.

Number of Stocks at New Highs -- NYSE

Then there is the breadth. On its own, Monday's number was OK -- not great. For the NYSE, it came in at 1050 with the S&P up almost 17 points. Last week the S&P was up almost half of that, with a gain of just 9 points and net breadth was at plus 1070. So we saw a "better" breadth day last week with the S&P up a bit more than half the number of points. Again, as with the new highs, this is not impressive. In fact, the cumulative advance-decline line made a marginal lower high Monday vs. last week. It is so marginal that we should not to fuss about it -- but it is the first time breadth did not keep pace.

As far as sentiment goes, folks certainly got giddy on Monday. The ISE call-put ratio registered at 289%. To show you how rare this, is I'm posting the chart that runs back to late 2009, circling just four times the ratio has gotten this high, with the two instances on the left side coming in much lower than the other couple of times. The two on the right side -- i.e. the most recent -- are Sept. 14 of this year and July 20, 2011. As a reminder, the Sept. 14 date was at the high marking the Fed announcement of more quantitative easing -- and July of 2011 was shortly before U.S. debt was downgraded and the market collapsed in August.

ISE Call-Put Ratio

On the left side, those two circles were in 2010. The leftmost one was mid-April; the market made a high two weeks later, and the "flash crash" was three weeks after that. The next one over came in the middle of the summer of 2010, just as the S&P was about to give back an 8% rally.

I haven't included that clump of high readings seen in late 2010, since those are the ones that came in December, which is similar to the present in terms of seasonality. So you have a choice: Ignore the readings because they are in December -- or do not.

My sense is that the lack of new highs, the tepid breadth and the high ISE might not matter into year-end -- but that they all will matter come January, once the market gets overbought.

Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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