I always find it helpful to step back and see where we have come from.
Do you know the S&P 500 is up a whopping 12 points on the year? Sure, that might be because of the big-cap tech stocks, but then why is the McClellan Summation Index also flat? That encompasses the breadth of the New York Stock Exchange.
We came into the year still working on the oversold condition that had developed just prior to Christmas. That turned into an overbought condition by the end of the first week of January. Last week, the major market indexes found themselves working off that overbought reading. Oh, sure, the S&P was only down about 1.5%, but as noted, it leaves it pretty much flat on the year.
Last week barely changed any of the indicators. The Summation Index remains flat to down. It would require a net differential of positive 800 advancers minus decliners to stop going down and more to head up. That has been a negative divergence in the works. It is also extremely rare to see the Russell 2000 up 10% and the Summation Index not participate. I think it is because of the speculation in low-priced stocks, but that is rationalizing an indicator, something I prefer not to do. It's a divergence.
The number of stocks making new highs has been steady, but as I explained on Friday, I do think the way the special purpose acquisition companies get treated has skewed the readings. With each SPAC having warrants and, often units or Class A or B stocks or both, each SPAC essentially gets counted three or so times. That would be like Apple (AAPL) common stock making a new high and getting counted three times, because there were "derivatives" of it on there, too. I do not like to rationalize an indicator but in this case, I think it is warranted.
Yet the number of stocks making new lows remains paltry. Sure you can say it is because the majority of stocks made new lows in March of last year but last summer had no trouble seeing more than 100 new lows nor did the fall fail to see a rise. Sure, the calendar has something to do with it, but when plotted on a 10-day moving average, this metric has refused to rise. That is a positive, not a negative.
For the last two months, we have seen most of the major indexes develop channels. With the exception of Russell 2000 fund's (IWM) two-day breakdown a few weeks ago, the channels have remained constant. With the exception of Nasdaq (and the Nasdaq fund (QQQ) by extension) most indexes are within their channels, having backed off from the upper end last week.
Nasdaq finds itself kissing the lower boundary. Let's use the chart of the QQQs. That means this week is a big test: Does Nasdaq hold the line or does it break it? Remember, breaking the line is not the end of the world, but it is often a precursor to a correction.
With the bonds moving up (and rates, down) and the dollar trying to enjoy a rally, I am still in the correction camp. The one fly in the ointment is that my Saturday Twitter Poll was decidedly bearish. Each week I ask what you think the next 100 points in the S&P will be.
Final Results from the weekly poll. Thank you everyone for participating. You're terrific! pic.twitter.com/pkXJwYuFUE— Helene Meisler (@hmeisler) January 16, 2021
This week folks leaned to the downside for the first time in nearly two months, but they leaned to the downside by 20 points.
The last two times the survey was skewed that much to the downside was mid-May and late June. Both times the market had been struggling for weeks, which is not the case now.