A few weeks ago, I said the market had what I believed were three options. At the time, breadth was lagging and Nasdaq was up every day, so I believed there were choices.
Behind door No. 1, we would find the down and outers catching up, which would be the most positive outcome. Behind door No. 2, we would find the growth stocks come down and correct, taking the market back to an oversold condition. That would be a positive outcome, too, but you'd have to sit through a correction. Then, there was Door No. 3....
The last 10 days in the market have seen both the scenarios for doors No. 1 and No. 2 play out, as Nasdaq came down and the down and outers caught up. But behind door No. 3 was the goat -- and I don't mean "Greatest of All Time" -- and that was that Nasdaq keeps flying and everything else goes down. That's not bullish, but that's exactly what we got on Monday.
Monday's market, statistically speaking, was one of the worst we've seen divergence-wise, when it comes to value vs. growth. Monday's market saw the S&P gain nearly 1%, and breadth was negative. That does not happen often. I cannot give you the exact time and day, it was like this before, but I can tell you if it keeps up it is ultimately bearish for stocks.
The negative breadth means the McClellan Summation Index, which was trying to turn up, is no longer looking up. It won't take much go get it back to the upside, but as I noted, it tells us what the majority of stocks on the New York Stock Exchange are doing, and that is dripping or going down.
After having a good week last week, the Russell was red, the transports were red, the utilities were red. Some might call it healthy group rotation, but to me group rotation doesn't send mega-cap tech stocks up by 8% to 10%, while leaving everything else for dead.
Look at the statistics on Nasdaq. Nasdaq was up 29 points on Friday. Monday saw the point gain of nearly 10 times that, when Nasdaq gained 260 points. Yet, Friday's up volume as a percentage of total volume was better than Monday's. Friday saw up volume at 67% and Monday saw it at 65%.
What does that mean? It means the rally was highly concentrated, and did not spread the wealth to other stocks.
I will end by noting that the Volatility Index fell to its lowest level since the crisis began in March, which brought the Daily Sentiment Index for the VIX not quite to single digits, but to 10. I would say it's telling us to expect some volatility in the market sometime this week.