The rally in the bond market was pathetic, but I found it interesting that bonds rallied, despite the producer price index coming in so hot, not to mention that retail sales blew the doors off expectations.
That's worth keeping in mind, because of the non-stop chatter these days about the commodity supercycle, and all those very high expectations for gross domestic product in 2021.
It's also interesting, because the Russell 2000 was weak where it had been leading. If you squint hard enough, you can even detect a very minor divergence in breadth in the past week. The blue line is breadth and it has the look of trying to roll over, where the brown line is the S&P 500 and it is flat to slightly up in the same time period. The same thing happened just prior to the January swoon.
Breadth hasn't exactly been weak, it's just begun to lag as it did a month ago. And that lagging has made the McClellan Summation Index stop going up. It hasn't really turned down yet, but it will now require a net differential of positive 600 advancers minus decliners to keep it from turning down (and more to turn it back up).
But the real change came from Nasdaq. Last week we looked at this chart of net volume for Nasdaq. At the time I marveled (and still do!) that since the calendar turned to 2021, we had only three days where down volume had exceeded up volume. That was it. And a mere seven days since the election. Yet, take a look: Three of the last four days saw more down than up volume on Nasdaq. That is quite a change in pattern, don't you think? We didn't see that in the January decline.
This brings me to the McClellan Summation Index for Nasdaq using volume. Last week I explained that this indicator showed no signs of weakness and that it had been steadily up for months. Yet as of a week ago it needed a net differential of negative 8 billion shares (up minus down volume) to halt the rise and that it was so extreme and each time I had seen it so extreme Nasdaq had corrected a few percent.
Those three negative days had such an effect that the Summation Index has stopped going up. It's hard to see on the chart; it's mostly stalled out. But it will now require a net differential of positive 1.7 billion shares to turn back up. That is a change, because it's something we haven't seen in months.
It is my view that the Summation Index tells us what the majority of stocks are doing, so if they are stalled out or rolling over, then the majority of stocks are doing the same. And that means it gets harder to find winners on the long side.
The overbought/oversold Oscillators have come off the boil even if the S&P hasn't. But we are not yet oversold.
Finally, we did look at oil yesterday, so I want to follow up by letting you know that the Daily Sentiment Index (DSI) for oil tagged 90 on Wednesday. That usually means the runway is short until that corrects itself.