These days everyone seems to feel the need to pick a side. We see it in politics all the time, but it's become prevalent in markets, as well. Bulls hate bears. Bears hate bulls.
I mean, if you are bullish, then you should love the bears because they are short-covering fuel for a rally. If you are a bear, you should love the bulls, because they are giving you higher prices to short at. Think about it, don't both sides need to work together in some fashion to create a two-sided market?
It doesn't even have to be bull vs. bear. We even see it in growth vs. value. A few weeks ago I noted the equal weighted S&P relative to the S&P and it wasn't pretty. As you can imagine, it has perked up in recent days (since that Bank Index hysteria two weeks ago). But I have kept my eye on a different equal weight chart that I don't see highlighted many places. It's the Invesco QQQ trust (QQQ) relative to the Equal Weighted QQQ (QQEW) . Let's start with that lower high it made a week or two ago.
Now look at Tuesday's decline, not because it declined so much, but because it looks like the second leg down off that initial lower high, doesn't it?
The blue uptrend line has held since the calendar turned to 2020, so for now it is still intact, but notice that the flat green line comes in not much below the blue line. This is important, because breaking an uptrend line isn't that big of a deal, it's when you break an uptrend line and a prior low that it should be fussed over. Breaking two key areas is more important than one.
My takeaway from this chart is that if those green and blue lines break -- in other words, this isn't just a short-term correction -- it will be worth paying attention to, because it probably means there is a change in at least an intermediate-term trend.
Away from that, we are heading into another overbought condition. The McClellan Summation Index is still rising, but it now needs a net differential of negative 3,000 advancers minus decliners to halt the rise. Once it gets to negative 2,000 or deeper, it is into overbought territory. At negative 4,000 or greater it gets extreme.
My own Oscillator will be overbought Friday. Beginning Friday there will be very few "red" numbers left to drop off the 10-day moving average of the advance/decline line. That's what will make this overbought.
For now there was very little improvement in the number of stocks making new highs, but breadth was quite good and the Summation Index is still rising. So the overbought reading should lead to a pullback that keeps the roller coaster in the market alive. Should the indicators roll over I would look for a bigger swoon than just more up and down.