On July 16 the S&P 500 closed at 3004. On Thursday, it closed at 3003.
Why does this matter? Because the 16 was when the market first reached its overbought reading. In essence, it has been working it off since then. The issue is that we can't seem to string together several down days in a row to get it back to a decent oversold reading.
Thursday's decline saw the market's breadth the worst in two months, but it didn't do much damage to most charts. What it did do though was keep the McClellan Summation Index heading down. This indicator also peaked mid July. It now needs another big up day, such as we saw on Wednesday to get it to stop going down.
The number of stocks making new lows for Nasdaq did not expand beyond the 115 new lows we saw a few days ago, but the 10-day moving average of this indicator continues to rise, as does the 10-day moving average of new lows for the New York Stock Exchange.
So basically the same way Wednesday's rally did very little to change the indicators, Thursday's decline did very little to change the indicators. But at least we got some volatility.
Speaking of volatility the put/call ratio for the Volatility Index was once again under 20%. Readings under 20% don't come along very often, but back-to-back readings arrive even less frequently. In the last five years there have been six such instances, with three of them showing up since December of last year, so perhaps they are becoming more frequent.
The takeaway is not that it's bullish or bearish, but that we tend to get some sizable moves in the market in the ensuing month. Just look at the one year chart of the S&P with the three red arrows showing the times we had consecutive low readings for the VIX put/call ratio. Two were bullish and one was a precursor to a bearish move. But none produced small moves, did they?
Back in the 2014-2015 time frame we saw two such readings. The one in late September 2014 led to a major plunge but a terrific recovery followed. In June of 2015 we plunged, rallied and then, well, collapsed.
The fall of 2017 is the one the bulls will lock on to. In mid October the S&P just milled around that 2550 area for a few weeks. Then it had some wild trading in late October where it went up, down, up in a week -- now that's volatility -- but then a month later it was straight up with another outsized move.
My take is that everyone will see what they want to see in these charts. I simply think it means after doing a lot of churning for the last two weeks we should plan on increased volatility coming our way. If the move turns out to be like the fall of 2017, the bulls will be happy. If it turns out like the other periods, there should be a lot of down and up, driving those who prefer trends crazy.