When you step back and look at the charts of the various exchange-traded funds, the thing that strikes me is that they pretty much reflect the statistics and indicators. You see very few of these industry ETFs have made a new high. Most are still residing in the same range they have been in since the spring.
Some have made it back to the top while others are at lower highs. The ones in my pile of charts that have made new highs are the banks and the software stocks like iShares North American Tech-Software ETF ( (IGV) -NYSE). And quite frankly IGV did not exactly make a new high like it means it. Look at that chart: the new high was on Monday and then it spent the remainder of the week sitting there.
On the other hand, the KBW Nasdaq Bank Index (BKX:Nasdaq) did make a high like it means it. It does eventually measure into the $150 area on this chart but it is a little bit over-extended now.
So it should come as no surprise that the number of stocks making new highs reflects this. The New York Stock Exchange did make it to a few more than 200 new highs on Friday, as did Nasdaq. But here we are at the same place the S&P 500 was in early September, and there are fewer stocks making new highs than there were then. The good news: they are heading in the right direction.
On Friday, both the S&P and the Russell 2000 were down and breadth was flat. That's a good showing for a breather in the market. And yes I still think the market is having a breather.
We've rallied hard for two straight weeks. Sentiment has gotten pretty bullish, although not extreme. Not yet. Breadth has kept pace as well. So now we are likely in for a choppy period. You know the sort I'm talking about, where on up days it feels like we're going to keep on going and on down days it feels like there is more to come.
Just look at the chart of the S&P and you can see over the last year the chart has a history of having a quick run up only to stall out or correct. The key is how the digestion plays out. A digestion like we saw off the July low is not what we want to see. That became narrow and eventually led to the September decline.
For now, Friday showed what you want to see in a stall out/pullback, which is breadth hanging in there and sentiment starting to hedge a bit. You see the equity put/call ratio moved up over 0.5 for the first time in nine trading days. I still expect the 10-day moving average of this metric to curl upward this week just because of the math.
And this week should and could provide us with plenty of ups and downs as we have all the big index moving stocks reporting earnings and then we have the end of the month. And will folks prepare themselves for the early November Fed meeting when a taper is expected? You can see why the CBOE Volatility Index will probably lift and stocks could go into chop mode.