At least you no longer need to squint to see the uptick on the chart of the iShares Russell 2000 ETF (IWM) relative to the PowerShares QQQ ETF (QQQ) . And that was the biggest change last week. Note there was also a nice uptick in late August, then it came down to make a higher low, which was also the case in late May/early June. It remains my expectation that this ratio works higher.
After last Thursday's rally, I stated that I would love to see the market come back down for a retest. Friday's action worked in that direction, as the S&P 500 and the other big cap indexes retreated. And lo and behold, for the first time in nearly two months, the number of stocks making new lows did not expand.
Last Wednesday saw 150 new lows for the NYSE. Thursday, that number contracted, but as we know the S&P 500 rallied hard. Friday's decline saw fewer than 30 stocks making new lows. So I have to figure that if the S&P 500 were to come down and retest Wednesday low of 2557 (a long way away), it is now likely there would be fewer new lows.
But let's take a look at what we might call the Tale of Two Gaps. Here is Microsoft (MSFT) , a fan fave this year. It gapped up on its earnings and has dribbled lower ever since. Even during Thursday's rally, the stock fought to stay green. And now it looks like it'd rather fill that gap, doesn't it?
Sometimes it is helpful to view the chart upside down, just so you don't have a bias. Here is the chart of Microsoft again, but this time I have flipped it upside down. If you were the bottom-fishing type, wouldn't you buy this for the gap fill?
Now, let's look at Celgene (CELG) , which has had an awful time of it since early October. It's had three gaps down. But since the last one in late October, it has worked its way higher. If you were the bottom-fishing type, you might be inclined to buy this down-and-outer for a move to fill that gap, wouldn't you?
Now, look at Celgene flipped upside down. Doesn't it look like late October's gap broke out of a huge base and is now working its way back down to fill the gap?
Late last week, the winners stalled or lost and the losers rallied or won. I believe that's why the ratio of IWM to QQQ finally turned upward. That is typical for this time of the year, but you can see why the new lows finally contracted and the new highs are faltering.
Sentiment-wise, we remain in the same place. There was no panic, but we took some of the air out of the complacency that existed. Friday's equity put/call ratio slipped under 60% for the first time since early November, yet the put/call ratio for the VIX went under 20%. Typically, when so many are loaded up on calls for the VIX (a bet the VIX will rise/stocks will fall), we tend to have a short-term rally.
The flipside of that is the Consensus Inc Bulls are now at 77%, the highest reading in nearly four years. They were last up this high in early December 2013. You can see on the chart of the S&P 500 from then that over the next two weeks, the S&P 500 gave back 2% and then rallied 5% in a hurry, only to fall even more in January.
So, you can pick and choose which chart you like: Microsoft or Celgene; the new highs or the new lows; or the VIX put/call ratio or the Consensus Bulls. I will remain focused on IWM/QQQ, since that chart has been the most consistent.