CNBC's anchors and guests are not known for uttering a bearish word unless the market is actually collapsing, but they commented several times on Tuesday that the move in the Dow Jones Industrial Average was mostly "just two stocks."
I would disagree with part of the statement. Sure, Caterpillar (CAT) and 3M (MMM) carried the bulk of the rise, but Boeing (BA) helped, too! My point is that you know it's ridiculous when you see the DJIA rise by nearly 200 points and the S&P can barely add four points.
Therefore, it won't be a surprise to know breadth was nothing to write home about. I suppose breadth could have been negative, but it was marginally positive. Yet the McClellan Summation Index is attempting to roll over. It will now take a net differential of +1,300 advancers minus decliners to turn it back up. Recall that about a week ago it would have required +800, so it's not improving. What's more, the last day we had a net of +1,300 on the advance/decline line was Sept. 11, so it's been six weeks since we saw a one-day breadth reading that good.
Then there is the increasing number of stocks making new lows on the NYSE. The good news is that the increase from Monday to Tuesday was a mere two issues, but the bad news is that the markets were up all day. I do believe, though, some of the increase is due to the final week of October when we tend to see a good deal of tax loss selling.
What also struck me was that the VIX was green on the day. It was barely green, which means it wasn't dire, but considering everyone seemingly cannot wait to sell the VIX and apparently the shorts in volatility continue to rise, I did find it curious.
The Daily Inverse VIX Short-Term ETF (XIV) is a way to go short the VIX, and it rises relentlessly. Yet it was (barely) down on the day. I decided to take a look at the ratio of the VIX to the XIV. Aside from the continued downtrend, there have been a few periods in the last year that it has gone sideways for a time before popping (and eventually heading lower).
My call in early October was that I expected to see a rise in volatility and thus far it has gone up, but not as much as I had expected. This chart has seen a period of sideways though this month, despite the continued rise in the S&P 500 and especially the DJIA. That gives me hope that I might still get some rise in volatility.
Since bonds are on the verge of breaking down (2.4% on the 10-year is the most watched level for a breakout) and the dollar is on the verge of breaking out vs. both the euro and the yen, it's possible a break in any of those could bring us some volatility. A big level on the Dollar Index is 94. Crossing it would complete the head-and-shoulders bottom that has developed in the last three months. We'll keep our eyes on sentiment should that happen.
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