Remember several months ago when the narrative was that the market was just fine as long as the yield curve didn't invert? Well the yield curve never inverted and the market went down anyway.
In fact, look at a chart of the yield curve. See that low in late August (red circle)? That was on the verge of inverting and then, boom, up it went.
Now I want to draw your attention to the chart of Nasdaq. The red circle represents the high in Nasdaq. Look when it arrived: just as the yield curve was bottoming. To recap, there was no inversion even though consensus said we did not need to fret until there was an inversion, and it turns out when the spread headed back up stocks topped.
I am not a bond expert; I don't even play one on TV. But I can read a chart and those charts lined up to strike that narrative down.
The new narrative I hear is a refrain that as long as credit is OK the market is OK. Again, I am no expert on any of this but does this chart look like credit is OK? It's the chart of HYG, an ETF to be long High Yield Corporate bonds. It looks like a chart of Nasdaq, or the Russell 2000, having broken the uptrend line. I am not sure one is leading the other.
As for Monday's action, not much changed despite the rally in Nasdaq. In fact, the number of stocks making new lows for Nasdaq increased while the number of new lows for the NYSE contracted and remains below 300 names.
Even the small caps did better on a relative basis but not much changed for the indicators. One indicator I am watching closely is the McClellan Summation Index. The reason is that a week ago, just before the big up day, it needed a net differential of +3,700 advancers minus decliners to halt the slide. As of today it needs +1,600 to halt the slide. So in essence, it hasn't gotten worse, or more oversold.
This indicator has been a straight shot down since early September. That's nearly two months without so much as a wiggle upward. Not even an attempt to halt the slide. With it needing +1,600 advancers minus decliners to halt the slide, clearly a big up day with decent breadth could do it, something that was not possible a week ago.
Sentiment wise the bearish chorus is loud. Then why did the equity put/call ratio fall to 57%, the lowest reading since October 3, just before the market slide? To offset that the Daily Sentiment Index (DSI) for the S&P fell to 10. Under 10 and it's gone too far (it fell to just under 10 right before last week's rally).