Now that was a nice rally in the major indexes. Too bad the statistics behind it weren't so great.
We'll start with breadth. I would say it was nothing to write home about, but it was actually worse than that. Net breadth on the New York Stock Exchange was positive 750. That is with the S&P 500 tacking on nearly 53 points. Recall last week when the S&P was up 60 and I said breadth was beginning to lag with net breadth at positive 1,280?
But sometimes it is easier to see it visually, so here's the chart. A month ago, in early January I showed this chart of breadth (cumulative advance/decline line) with the S&P. Breadth is the blue line and at the time I noted that it had scooted higher that it was at the equivalent of the S&P being at 4150 yet the S&P was still at 3900. I liked that.
You might have to squint a bit to see it, but breadth (blue line) is much lower than it was last Thursday, while the S&P (brown line) is almost where it was last Thursday. Net breadth needs approximately positive 2,220 to get back to last Thursday's level. Remember Tuesday it clocked in at positive 750.
Tuesday's breadth reading was not enough to turn the McClellan Summation Index back up, either. That will require a net positive breadth reading of positive 400 (advancers minus decliners on the NYSE). It's doable, but you can see that it is no longer the leader in the market as it has been for the last six weeks.
Then there are the number of stocks making new highs. The NYSE had 203 new highs last Thursday. Tuesday there were a mere 85.
Lest you think Nasdaq is faring better, it is not faring better when it comes to new highs. Last week there were 199 new highs and Tuesday clocked in at 104 new highs. However, Nasdaq's Summation Index is still rising.
The market gets overbought on an intermediate-term basis early next week, so the window is open for improvement, but in the last week I have seen less participation rather than more. You can see what I mean in the chart of the Russell 2000 fund (IWM) relative to the S&P. When this is going up the small caps are participating full force and breadth is good. When this is going down, we're getting narrower.
On the sentiment side of things, there is some giddiness. Maybe a smidgen more than last week. But the Daily Sentiment Index (DSI) for the Volatility Index is back at 14, so if the narrowness continues and the index movers keep pulling the index upward, we'll have divergences and the VIX with a low DSI. Until now the low DSI readings on the VIX have not been accompanied by divergences. So that's what I'll look out for because this would be different.
