Would you like to see my list of negatives on the market? Let me share.
Breadth has turned sour the last two days. That means the McClellan Summation Index is no longer rising. The number of stocks making new lows has cranked up on Nasdaq. Wednesday they chimed in at 82, 40 more than the number of stocks making new highs and the most since the lows of mid November (when there were 101 new lows)
Then there is the huge underperformance of the Russell 2000. There's the fact that the Utes cracked the uptrend line. The fact that the put/call ratio refuses to go up but rather stays low.
I'm sure I can come up with a few more items but I want to address breadth. You see breadth is such an important input to me in my work. And while I think the rolling over these last few days is not healthy and is weighing on the McClellan Summation Index, which has now flattened out and is in danger of seriously rolling over, breadth is also an input in the Overbought/Oversold Oscillator.
Yesterday we discussed the Nasdaq Momentum Indicator which is based on price. But my own oscillator is based on breadth. And since we look back at the prior ten days to see what sort of numbers we are dropping to determine if we are overbought or oversold, having red breadth numbers now means we ought to get oversold in the future. You don't get oversold by going up every day.
This is not much different than the way we looked at the market last week when we reached an overbought reading. At the time I showed you the long string of positive numbers we were to drop which is how we knew the market was overbought. But now take a look at the Oscillator for the NYSE. Look how far it has come down; it's heading to an oversold condition.
Nasdaq is even further along.
Ever since we got overbought I said I thought we'd pull back and that it was likely we would then rally near Christmas. So if we get some red breadth numbers now it gets us oversold as we get closer to Christmas -- which is now a mere two weeks away -- isn't it?
So sure I care that the Russell 2000 acts crummy. But we did the math for a measured target and the target was achieved. But let's check in on the chart of the Power Shares QQQs (QQQ) . Last week we identified the 152 level as key support. It has spent this entire week testing 152. Now look at the uptrend line conveniently comes in around 152 as well.
Oh sure the rally on Wednesday might lead to form the right shoulder of a head and shoulders top in the QQQ's but personally I think it would be great if the QQQs broke 152 just as it was getting oversold. Then maybe we'd actually have some panic to go along with the oversold condition. Nah, forget it, panic seems to have gone the way of the dodo bird.