I would be a terrible narrative writer.
Whenever someone asks me why I think XYZ did such and such, I give a sigh of relief. Why? I do not need to provide a reason -- a narrative -- about why we saw the market move.
Yet, look at this example of common narratives we hear: The entire spring, as interest rates were rising and tech was falling, the typical narrative was, "You can't own growth in a rising rate environment."
Then rates fell and tech and growth rallied this summer, and the narrative stayed intact. But it hasn't been so easy of late to make that narrative work, has it? The yield on the 10 Year note might be 1.6%, which is essentially near the top of the range, but the yield on the five-year Note is at 1.16%, which is a new high for this cycle. As a reminder, that base measures to around 1.25%, so it's getting close.
Basically rates are rising, at least the short end is, and tech stocks are doing just fine. I suspect we'll eventually begin to hear a new narrative, which simply proves my point that no one really knows "why" just that it "is."
Here's what I can tell you, though. For the last two days, breadth has stunk. In the last two trading days, the S&P has gained 48 points and breadth has lost almost 200 issues. That is the one thing I didn't want to see. I have shrugged it off as an overbought market correcting and that would still be my view, but Monday brought some statistics that require some close monitoring.
You see, the number of stocks making new highs has contracted. I suppose that is no surprise, but remember we don't want to see that. The narrower the rally, the harder it is to find winners, the worse the rally. The New York Stock Exchange had 140 new highs, which compares to 205 on Friday. We need new highs expanding not contracting.
I can live with new highs contracting for a few day, working off the overboughtness, but when I see Nasdaq's new lows more than double from Friday to Monday, I start to fret. Friday Nasdaq had 62 new lows, but Monday there were 137 new lows. Contracting new highs coupled with expanding new lows is problematic.
On the sentiment front, rallying tech was what it took to get the bulls to come out of hiding. The put/call ratio is still very neutral at .81, but it shows you folks are no longer fighting the rally, as they were last week. The 10-day moving average of the put/call ratio has gone from .98 last Monday to .90 as of Monday. It is not showing any sense of giddiness, though, just a general warming up to the market.
I still think we're just seeing a bit of the overbought-ness getting worked off, but for the first time in three weeks there are some indicators that are no longer keeping pace. The S&P has now rallied to green for four straight days, something it hasn't done since August. That is a change. It also probably means no one should be surprised if Tuesday sees a pullback. Since late August the S&P has only been green on a Tuesday once.