I was asked recently what I thought the most important chart to watch was. I think at various times in the market there are different charts that I would deem important. For example, last week I would have said it is the chart of bonds. But now that bond yields have come back up, it doesn't seem as urgent.
This week I would say I have three charts in mind. But it could easily be more. I would start with the chart of the Russell 2000 fund (IWM) . We looked at it two days ago, but let's take another look at it now that it has come down again. That uptrend line is solid. It has been solid. It has been tagged six times in 2021. I think it is important for more than just a few days.
As I said the other day, if this line breaks, a pattern has broken. And it is a pattern that has been in place the entire year. I take changes in patterns as important, so that's a chart to watch.
But should we come back down to visit that line, I expect you will begin to see this chart everywhere you look. I expect it will be one of those charts that gets over-used. And then maybe we'd have to see what sentiment is like. But in the meantime, this remains a key chart I'm watching.
The other chart is one we've looked at before, as well. It's the channel in the Invesco QQQ (QQQ) . It has been solid for the last six weeks. So, while not as important overall for the market as the IWM chart, this is key, as well. This has been where the action has been, so this is the place that folks are now overweight. That means any change in this pattern is another change in the market.
The third chart is that of stocks making new lows on Nasdaq. Last week's lows saw 144. Tuesday's decline saw 75. Should IWM get back down to the line and there are fewer than 144 new lows, that would be the first positive divergence we've seen since those mid-May lows (blue box).
I know it's been two months and everyone now loves tech, but there was a time in mid-May that folks hated tech and yet we saw fewer new lows at the time, even while Nasdaq made a lower-low. That was a positive divergence. So, that's what I would be looking at.
I also would note that the reversal in the big-cap stocks on Tuesday brought the Daily Sentiment Index (DSI) for Nasdaq down a mere two points to 87. The S&P is at 82. But this level of complacency in the market is not good, because even if we get the DSI down to the low 80s, it doesn't leave a lot of runway on the upside.
One last point. Here's something you don't see often. The Oscillators are based on breadth and they are below the zero-line -- look how extreme Nasdaq is -- with the major indexes at the highs. That's the big divergence out there now.