Wednesday morning there was gloom everywhere you turned. Heck, post the Fed announcement there was a lot of discouragement and bearishness. Perhaps that's why the equity put/call ratio ended the day with a reading of 70%, the highest since September 3rd.
But by the end of the day it seemed like everyone around me was happy. Rallies have a way of doing that. It didn't show in the statistics but boy did it feel like the gloom had been lifted. Even the bears on television were recommending stocks.
Since we reached the short-term overbought reading a week ago the S&P has gone nowhere. It was 3000 a week ago and it is now 3005, with a trip down to 2997 in between. That's what a loss of upside momentum looks like, especially when the intermediate-term indicators are still rising.
But in the past two days there has been a minor shift. Remember my mantra: if breadth is good, the indicators are rising; if breadth is poor, the indicators rollover. In the last two trading days the S&P rallied nearly 9 points and breadth has lost 32 issues. Just compare that to September 9th and 10th when the S&P was flat as a pancake and breadth gained 1170. That's the sort of change we don't want to see.
The McClellan Summation Index is still rising but it will stop rising if breadth is negative by 500 issues or more. That's not a big cushion, is it?
The Volume Indicator is now at 55% which is its first foray into overbought territory. It is the first intermediate term indicator to get overbought. It was also the first intermediate term indicator to get oversold in late August.
So what we have is a market that has seen the number of stocks making new highs fail to increase. Yet for now the number of new lows has not expanded either. I have given this indicator the benefit of the doubt because breadth has been good. So if breadth begins to lag as it has the last two trading days, that will be problematic for me.
I want to end with the chart of IWN:IWO. This is a chart I showed a few weeks ago in early September (on a much shorter time frame) to show the rise in value stocks vs. growth stocks. You can see the big rally hasn't even taken it over the April high nor has the ratio gotten to the downtrend line.
Just compare this well-discussed value vs growth rally with what took place in the fourth quarter of 2015. That low in the ratio soared right over the downtrend line and in doing so took out the previous high. That began 18 months of value outperforming growth. That lasted until just after the 2016 election. Since January 2017 it has been a one way street for growth over value.
I have no idea if this is the start of something as it was in 2015 but unless/until this ratio gets over that 0.62 level which would cross the downtrend line and take out the previous high, I can't see a reason to think it is the start of a whole new trend just yet.