Well, I guess now we know why the Volatility Index (VIX.X) had refused to go down. Clearly it knew that we were in for a bout of volatility.
Let's begin with the chart of the Overbought/Oversold Oscillator. A week ago, I showed you the Nasdaq Momentum Indicator and how when I plugged in higher closes for the next week for Nasdaq the Indicator went down, meaning it was overbought no matter what Nasdaq did. My own Oscillator was set to get overbought earlier this week. So far, the market has lost its upside momentum, especially when you consider that unless the S&P 500 is up 8 points on Friday, it will have had a down week.
Remember the Oscillator is showing us when momentum has gotten too stretched in one direction or the other. It doesn't tell us we have to go down or up. Sure, I would prefer if when we get overbought, we go down, because going down pushes us to a better oversold condition. Chopping as we did this week might take the Oscillator down, but it doesn't send it to a good oversold condition.
I have no idea what the market will do on a day to day basis, but if we can get some downside again next week then I think we could be back to an oversold condition as we head into early March.
On Thursday, we had a situation that was the complete opposite of what we saw on Wednesday. On Wednesday the S&P rallied 16 points and net breadth on the New York Stock Exchange wasn't even positive 200. The only thing that would have been worse is if it had been red.
Yet on Wednesday the net volume (up volume minus down volume) was positive a billion shares. That's a good showing.
Turn the page to Thursday and the S&P lost 13 points with net breadth at positive 670. That's a good showing; a very good showing. Net volume on the other hand was positive 200 million shares. Now a positive read on volume on a day the S&P is down is a positive, but 200 million shares compared to the 1 billion shares the prior day is not as good, especially when the advance/decline line was better on Thursday and Wednesday.
I realize this is all very confusing, but the bottom line is that despite the crummy breadth and good volume on Wednesday and the good breadth and mediocre volume on Thursday, none of the breadth indicators have changed. They remain stuck, much the way the majority of stocks have been for a month now.
The only consistency in this market has been that growth stocks have been rallying at the expense of value stocks. The longer that goes on, the more the divergences widen. If that changes, so do the divergences.
In the meantime, I would note that the Daily Sentiment Index (DSI) for the dollar is now at 93, with a five day moving average at 89. That's extreme. So is the DSI for gold, which is also at 93. Its five day moving average is 86, so not as high as the buck. No one should be surprised at a pullback in either of these assets.