My guess is many people will see that trading action for the day on Tuesday in Nasdaq and think that it is bearish.
And it very well might be, if there is follow-through, and especially if there is a gap down on Wednesday.
Now, I'd like you to look at the chart of Nasdaq differently, by noticing what an incredibly textbook-like channel there is, since April. Remember that if two points make a line and a third confirms it, then the more points on the line, the better the line. Well, that lower line has four touches. I am considering those clumps of three days in mid-May and mid-June as one touch each.
The upper line, too, has four touches, with the clump of three touches right before the June 11 collapse counting as one touch.
Why am I showing this to you? Because even if there isn't follow-through on the downside Wednesday, it is possible that Nasdaq could tag the upper line by the end of the week. I fuss over this because the Daily Sentiment Index (DSI) for Nasdaq stands at 88, so another up day or two ought to take it over 90 as it is tagging the upper line. We know that DSI readings over 90 have not been good times to buy. The last set of readings over 90 came just prior to that June 11 whack.
Either way, whether there is a gap down on Wednesday or a few more up days, that's the picture. And that channel has been a good one.
In the meantime, the charts for the majority of stocks haven't changed much in the last week or so. We had the big whack on June 11, which gave us the few days of rallying and then many stocks have retreated again or just milled around. They don't want to rally off the support they are at, nor do they want to break. I have a vision of me staring at a dead bug in my house, wondering, "is it dead or is it just resting?."
I want to poke it but am afraid I might stir it up.
But that's why the McClellan Summation Index hasn't returned to the upside. It hasn't turned down with a vengeance, either. We've had two days with mediocre positive breadth readings, but still this indicator needs a net differential of 1,300 advancers minus decliners to stop going down. I want to poke it to see what it will do.
For the first time since mid May, we have a very minor divergence developing in breadth (blue line). The S&P (brown) is a fraction higher than last Tuesday's high of 3124, but the cumulative advance/decline line is lower. This is also something to pay attention to. Will it correct itself as it did in May or will the divergence grow?
In the better news category, Nasdaq's new highs finally got to 200. That's an improvement, but it is still far below the peak readings from a few months ago. But more is better than contracting.
If the stocks that feel like they are stuck start to break down, all these indicators will roll right over. Maybe we should poke them to see if they are still alive.