Before we get to stocks, let's talk bonds. Because they failed to get up and over resistance. And therefore I think they will now stay in that range without getting extreme (by breaking out). In my view even if they go on to make a higher high in yield now it will be temporary.
As far as stocks go, Wednesday was the fourth consecutive day the S&P was in the red. Yes I know some will holler that "we are barely" down but four days has been the limit for this market since just prior to the November 2016 election. A down day on Thursday would obviously change that pattern.
But let's talk about the Oscillator. At the beginning of the week I noted we were overbought and the market ought to pull back. So naturally we now wonder when we might see the market back to an oversold condition. It's still too soon to tell using my own Oscillator.
However when I calculate a "what if" for the McClellan Summation Index I get a number just shy of +1,900 advancers minus decliners. By this I mean the Summation Index (that I have been harping about lately, that it continues down while the S&P goes up) would need just shy of +1,900 to halt its slide and therefore a few more than that to turn it back to up.
Once it gets to +2,000 issues needed it is into oversold territory. Over +4,000 and it has gotten extremely oversold. This means it is possible, with another poor breadth day, for this to move into oversold territory by the end of this week or early next week.
There was also another small piece of good news. The NYSE finally saw the number of stocks making new lows contract, from 149 to 110. Oh sure that's the rally in bonds, but as I have stated, I do not like to rationalize an indicator, and on Wednesday there was the first contraction in at least a week.
Now for the bad news. The Cumulative Advance/Decline line made a lower low. It's tough to see on the chart but it is now lower than the early September low. Why is this important? Because the S&P was at 2,870 in early September and it is now one percent higher. This means the divergence that took place with the higher high in the S&P last week that was unconfirmed by the breadth, we now have a lower low. I believe this is the longest divergence we've seen in a few years.
We have not yet seen sentiment turn from the complacent level earlier this week to any sort of fear but when we get a late day sell-off as we did the put/call ratio rarely rises that quickly. So we continue with the sloppiness we've seen all week.
