The market picked up on Monday, where it left off last week. By that I mean we saw the small-cap index, the Russell 2000, do some heavy lifting last week by rallying 1%, but we also saw breadth flat. A divergence.
On Monday the market might have turned lower, but even when it was higher in the early going, breadth was lagging. The Russell 2000 ended the day still in the green (barely, but green is green) and breadth was decidedly negative. That's what I mean: What started last week continued this week.
It was enough to get the McClellan Summation Index to have its first little turn down in six or seven weeks. Not every turn down leads to an immediate correction in the major indexes, but with the Summation Index at its highs and the divergence that began last week continuing, I would say even if it turns back up, it's still vulnerable.
What does it need to turn back up? It would require a net differential of positive 1,000 advancers minus decliners on the New York Stock Exchange. To put that in perspective, it's been two weeks since we've seen breadth stronger than positive 1,000 and that day the S&P rallied 40 points.
So can we rally?
The S&P has now been red four straight days, something it hasn't done since September. Oh, I'm sure some will say, "But it's only 50 points, no big deal."
Would those same folks who think it's no big deal also point out that on Nov. 9 -- the day that Pfizer (PFE) first announced its vaccine results -- the S&P traded to an intraday high of 3645 and Monday it stood at 3647? That's also no big deal. Meaning: There has been no progress by the big-cap index in a month. It's not up, it's not down.
But can we rally? Well, the S&P 500 hasn't gone to five-straight red since February. The TRIN, or the Trading Index, which is a calculation of the advance/decline line's relationship with up/down volume, was at 2.4 on Monday, the highest since September. Typically, a high TRIN leads to a short-term bounce. So sure we can bounce.
But we are seeing some minor deterioration underneath. Look at the move in the Transports on Monday. I think there is pretty good support at 12,000, but that action on Monday is not good because it wiped out all December's gains in one day.
I would also remind you that the Industrial Select Sector SPDR fund (XLI) , an exchange-traded fund to be long industrial stocks, is similar to the S&P in that it is at the place that was the high of the day on Nov. 9.
So, all the love for the industrials we keep hearing about hasn't helped very much in the last month, has it? I don't know if XLI will get all the way to the blue line, but that's decent support and you can be sure if XLI gets down there we'll stop hearing every person who comes on television say they like industrials.