After last Friday's market when breadth was spectacular but volume wasn't as good, I noted that it felt to me like we were in a speculative phase. But there was another, very subtle shift this week. It has to do with breadth.
Let me state right now, as I have said for a while: Breadth is, and has been, excellent. It was even positive during Thursday's intraday rout. But while it is not always one-for-one, we typically see breadth good when the Russell 2000 is good and vice-versa. But this week that changed -- just a smidgen - but it is something I plan to monitor going forward.
The Russell was on Monday down one point, which we may as well call flat. Net breadth on the New York Stock Exchange was a net negative 500. That's not usually the case. Tuesday the Russell gained 26 and net breadth was positive 830. That's a fine reading, except when you consider Thursday a week ago, the Russell gained a mere 10 points and net breadth was positive 950.
Now let's talk about the last two days. I've already stated that breadth was positive on Wednesday (not by a lot, but positive is positive) while the Russell fell 15 points. On Thursday, the Russell gained just over 1% -- 22 points -- and net breadth was positive 215.
I'm sure your head is spinning by now.
So let me bottom line it for you: Two days this week the Russell 2000 far outperformed breadth, by a very wide margin. That is not something we have seen much of since this rally began.
And this minor -- and it is very minor for now -- divergence comes as the Russell relative to the S&P is at some resistance (comparing the Russell 2000 fund (IWM) to the SPDR S&P fund (SPY) ). Also notice how since the calendar turned to December, it has been a one way street for the small caps over the large caps. Yes, it has been that way since November, but there hasn't even been a wiggle in these last two weeks.
For now the McClellan Summation Index is still rising. It entered the week needing a net differential of negative 2,700 advancers minus decliners to halt the rise. After Wednesday, it required negative 1,300. Now, after Thursday, it requires negative 1,000. The cushion is shrinking, despite breadth being positive three of four days this week.
Keep in mind it would need more than just one down day to roll it over, but it is worth this minor divergence in breadth and the Russell that has developed this week.
I will finish up by noting that not much changed in the indicators, after Thursday's Nasdaq and small-cap rally. Except, that the Nasdaq Daily Sentiment Index (DSI) is back to 88 so if Nasdaq rallies again on Friday, we could see another reading over 90, which would once again make Nasdaq vulnerable to some downside, just as we saw Wednesday's decline after a reading of 91.