The market was sloppy on Wednesday, but we also saw some subtle changes.
For example, while breadth was barely red, it was the first time we've seen consecutive days of red breadth in a month. That's a subtle change.
So let's talk about breadth, which has been quite strong. Think about it, we have not had back-to-back bad breadth days in a month. That's strong. The cumulative advance/decline line has been making new highs since well before the major indexes did. In fact, in my view breadth has been one of the major bullish indicators I have cited almost day in and day out.
It's hard to fuss too much over two days of barely negative breadth, but the change is worth paying attention to. The reason is because the McClellan Summation Index stopped going up on Wednesday. It won't take much for it to turn back upward -- a net differential of positive 200 advancers minus decliners will send it back up -- but this too is a subtle change.
My rule of thumb when it comes to the Summation Index is that it tells us what the majority of stocks are doing, so if it is heading up, it's bullish since the majority of stocks are going up. If it is heading down, it's bearish, because the majority of stocks are heading down.
Then we have the number of stocks making new lows. They have not expanded on the New York Stock Exchange. Nasdaq's new 52-week lows doubled on Wednesday from Tuesday. We saw 76 new lows on Nasdaq. That's a lot for a market at all time highs.
So far the 10-day moving average of Nasdaq's new lows is still just sideways. That is the same for the NYSE. What will become problematic is if this indicator starts to rise, especially since it would be rising from a higher low than it saw in September.
We already know about sentiment. It got a bit frothy earlier in the week with the low put/call ratio, the Investor's Intelligence bulls scooting up over 55% and the Daily Sentiment Index into the upper 80s for Nasdaq, not to mention the CNN Fear and Greed Index tagging 89. And we saw volume rise. It is interesting that the highest volume days of this month-long rally came in the last two days of chop, not when we were rallying.
Sentiment needs to come off the froth. Complacency needs to be wrung out. The market is also working off the overbought reading. So, a correction or sideways chop would likely give us a reset. The problem arises if the S&P keeps rallying and the indicators roll over. If that occurs, its sets up negative divergences and negative divergences are what we had at the May and late July highs.
Also keep an eye on the ratio of the small caps to large caps (the iShares Russell 2000 exchange-traded fund (IWM) /SPDR S&P 500 fund (SPY) ) because when this turns down, the market tends to get sour.