Each night after the market closes, I sit down with a pile of stock charts in front of me and I put a pencil to the paper, plotting the high, the low and the close for each stock in the pile. I do the volume as well.
As I do this exercise, I jot down charts that look good on one side of the page and charts that look vulnerable on the other. Since I can't help but be influenced by the "last tick" on a day that the S&P tacks on 80 points I will tend to have more positive than negative charts, even if I don't like the market. Call it recency bias.
But then I step back and really look at the chart and start crossing names off-from both sides, to reduce the recency bias. After Thursday's chart session I was shocked to see the negatives outpaced the positives by almost two to one. That is atypical.
Then I did the statistics and I can fully understand why I jotted down so many negative stocks. I know the market got oversold and, while I expected a rally, I did not expect an 80 point rally, basically taking us right back to where we ended the week last Friday.
Let's start with breadth. On the New York Stock Exchange, net breadth was +1,700. Remember the S&P was up 80. Two days ago net breadth was -2,040 with the S&P, down 65. So it was easier for stocks to go down than it was for them to climb. That might seem like I'm nitpicking, but look at the chart of breadth and what we see is the S&P poking up against the 2023 highs, while breadth (blue line) isn't anywhere close.
Lest you think tech is faring better, it is not. For Nasdaq, I prefer to use volume (up minus down) for breadth. You can see that it tends to keep pace with Nasdaq (brown). But here we have Nasdaq pushing up against the 2023 highs and cumulative volume nearly the recent lows.
We've been discussing the new lows lately, because the market was heading south and they were expanding, but recall a few weeks ago my complaint was about the lack of stocks making new highs. Here we have the number of stocks making new highs on Nasdaq at 54 -- remember Nasdaq is pushing up against the 2023 highs. In February that number was 200. In early April it was just shy of 100. Heck, on Wednesday it was 51. So a 290 point rally in Nasdaq netted us exactly three more new highs.
Finally there is the Daily Sentiment Index (DSI) for the Volatility Index. I haven't said much about it lately, because with the VIX rising, so too has the DSI, taking it out of the danger zone. But now it has fallen back to 22, which means if we can squeeze more out of this oversold rally then the VIX should fall and along with it the DSI which puts the DSI back into the yellow zone (under 20).
You know when there is this person that everyone tells you that you must meet because you will just love them? Then you meet that person and think, what's the big deal? That's pretty much where I stand with the market right now.
