Last week we looked at the breadth of the market and I noted that the generals were now on the battlefield all by themselves. Friday it seems that only the five star generals were on the field, even those with fewer stars weren't present.
We know that because breadth was so poor. We also know that because even on Thursday when the advance/decline line for Nasdaq was red, net volume was still positive. But that was not the case on Friday, on Friday both the advance/decline and net volume were negative.
Just take a look at the McClellan Summation Index for Nasdaq using Volume (if we use the advance/decline line it's significantly worse) and you can see that there has been some selling underneath.
The same is true for the New York Stock Exchange, where I use the a/d line. Quite frankly, if I used the volume figures for the NYSE you'd see it looks similar to Nasdaq's. The takeaway from these charts is that the majority of stocks are already heading down.
It is also evident when we look at the 10-day moving average of stocks making new highs on Nasdaq. It's back to where it was in June, having made a lower low than late July. And it's happening the same time the new lows are rising. Healthy markets with expanding breadth see highs expanding and lows contracting, which is not the case right now.
So how does the market improve itself when the last few weeks have been so poor for individual stocks? It needs to start with breadth. It needs to start with small caps, using the Russell 2000 fund (IWM) , to make a stand at their current support zone.
I mean breadth has been so poor for nearly two weeks that at least these down and outers are getting closer to an oversold condition.
What's also interesting is that even within technology it's getting narrow. The PHLX Semiconductor Sector relative to Nasdaq is the same level it was in May. If you look at the absolute price of the SOX it hasn't made any progress in three weeks. Despite Nvidia (NVDA) being one of the five star generals.
I maintain that it's the dollar that is still key. The Dollar Index moved up last week, while the S&P did as well. While they don't always move in lockstep, they have definitely been correlated (inversely) for the last five months. I think the dollar is heading up, but the key remains that 94 level on the Dollar Index. If it can break out over that, stocks might notice it. Or at least all the folks who have decided to suddenly turn bearish on the buck might need to change their views.