Let's begin with Friday's action: You have to admit there wasn't much selling, nor was there much panic.
Just take a look at the difference in the S&P 500 off that Thanksgiving high and pullback vs. Friday. Folks actually got panicky in early December. There was some decent selling.
Now, look at the TRIN, or Trading Index, which is a relationship between the advance/decline line and up/down volume. Right after Thanksgiving, the TRIN didn't get terribly high -- not enough to show serious panic -- but it did push up over 1.0 for two of those three days. But Friday it could hardly scrape 1.0. A high reading shows there is quite a bit of selling, which implies a good shakeout, which is why high TRIN readings are bullish.
Or look at the put/call ratio daily readings from those three days. One day got up to a high reading of 113%. This time it couldn't even get to 90%. Heck, we haven't had a reading over 100% since Dec. 18, and we've had two days where the S&P was down close to 20 points or more.
So, sure, in the scheme of things folks will say Friday's action was bullish. But was it?
Well breadth was a champ on Friday. With the S&P down by 23 points, net breadth on the New York Stock Exchange was negative 150. Heck, on Dec. 30, the S&P lost nearly 19 points and net breadth was negative 400, so Friday was clearly a better day overall for breadth.
This means the McClellan Summation Index is still rising. Only a week ago it would require a net negative of 2,000 advancers minus decliners to halt the rise, it now requires negative 400. Therefore I continue to monitor breadth closely. As long as breadth isn't rolling over, the negative divergences are of the minor variety. If the breadth indicators roll over, that changes.
I see nothing from Friday to change sentiment. The only change was in the highly sensitive Daily Sentiment Index, which had seen Nasdaq at 90 on Thursday and is now back to 78. But overall, the complacency is still present.
But let's look at the Transports. I keep hearing lately how we shouldn't use the Transports as an indicator anymore. Rather we should use the Semiconductors -- Nasdaq's PHLX Semiconductor Sector (SOX). Let me state right here and now that we all know if the Dow Jones Transports rally up through 11000 every single one of those folks who say the Transports don't matter will be lauding them as a sign of how terrific the market is.
Now onto the newly minted king, the SOX. I wonder if all those who are so favorable toward the SOX have noticed that relative to Nasdaq, they haven't done a thing in nearly a month? And if you look closely you will see the ratio had a slightly lower low on Friday. I'd keep an eye on this.
The SOX itself closed Thursday's opening gap during Friday's trading session. Therefore it ought to try and rally now. If it doesn't rally or can't rally, well, it seems important to me, especially now that this group has been anointed so important by so many.