It seems everyone would like to know exactly what it means to the markets that one group is being pushed significantly higher while another group is being crushed. It is in many ways the inverse of the summer of 2015 when so many stocks went down daily and a handful went up daily. The difference this time is partly the violence of the move.
And do you realize that the S&P has gone nowhere since Thursday morning? For all the hootin' and hollerin' about how great the new administration will be for stocks, the S&P still sits at 2165. In fact, the only place that the rally has been spectacular has been in the transports, small-caps and financials. And no, the cyclical stocks are not screaming; most of them are flat since Thursday morning, too. The Russell has run into its first resistance.
If you had told me 10 days ago that the number of stocks making new highs on the NYSE would explode over 300 issues, yet the net differential between new highs and new lows would be just under 30, I would have laughed, wondering what kind of story you were making up. Yet that is exactly what has transpired. Monday saw 330 new highs on the NYSE and just over 300 new lows.
Some will say this is healthy group rotation. I will say, do not rationalize an indicator. New lows should contract on rallies. Period. Don't make stuff up; contracting new lows is healthy, expanding new lows is not. Now, if we can get these now-crushed groups to enjoy some sort of oversold rally, we will see the new lows contract.
I am not one to do "studies" on market statistics, where I tell you there have been 35 other occurrences and X number of times the market did this. I will leave that to those who like those sorts of statistics. I can tell you that I looked back to February 2000 and saw we had expanding new highs and expanding new lows on an oversold rally. It also came after a decent move to the downside. What I found curious was that it led to a market decline. But that decline led to one more rally (which happens to be my view, that pullbacks/dips/declines should get bought for now).
Now this is just one instance, so I wouldn't pin a boatload of hope on it, but it is interesting all the same. More so it tells us something pretty unique is happening in the market, so we do need to be on our toes. Especially since the equity put/call ratio was under 60% for the second day in a row. This is not bearish -- not yet -- because quite frankly I might be more concerned if there was no acceptance of the rally. This shows us it took a week but we're finally seeing it.
I continue to expect pullbacks, no matter how violent they may be, to lead to another rally. When sentiment changes to all-out giddy, I'll get more concerned.
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