It was another day in the market where the major large-cap indexes held firm or rallied and the average stock fell.
Last week, we looked at cumulative volume as a means of watching market breadth. Once again, we find it lacking. The S&P rose 22 points on Friday with net volume at +700 million shares. It lost four points on Monday with net volume losing just over 1 billion shares. The net result is the S&P up about 18 points with the net volume showing a loss of about 300 million shares. That's the average stock not participating.
Sometimes it is helpful to see it in a chart. Take a look at the chart of cumulative volume for the NYSE. The first thing to notice is that it hasn't made a higher high in weeks. Yet the S&P is at least 50 points higher than it was then. More than that, the S&P is trading at 2070. For the cumulative volume chart to be in the same place as the S&P, it would need to add approximately 5 billion shares. That's up volume minus down volume.
That's the equivalent of Thursday's action happening for seven days in a row (700 million shares times seven days) and the S&P staying steady. That is how poor the breadth has been of late.
The breadth has obviously not been as poor as it was in the spring and summer. The McClellan Summation Index is still rising. As of last Wednesday evening, it would have needed a net differential of advancers minus decliners of -900 issues to halt its rise. The S&P is now up about 50 points total since then, so you would think there would be a bigger cushion for this indicator. But that is not the case. Rather, a net differential of -1,000 issues will halt its rise.
Keep in mind that it took eight months of poor breadth to get to the point where the market cared, or shall I say the indexes cared. If this persists, we are likely to see the Summation Index roll over. As long as it is rising, the market in general gets the benefit of the doubt. If it starts to roll over, the benefit gets removed.
This week will be dictated by Apple's (AAPL) earnings and the Fed. The Fed disappointed folks in September when they wanted a rate hike. Quite frankly, I'm not sure market players want a hike anymore as they seemingly found a new love for the market when Europe and China decided more stimulus was their course of action.
The bottom line is if this divergence between the haves and the have-nots steps up the way it did in the spring and summer, once the indicators roll over it will matter once again. That's the time factor in the market that everyone seems to hate because they prefer instant gratification.
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