It seems Nasdaq does have the ability to go down, after all.
I suppose 11 straight days for the Invesco QQQs (QQQ) coupled with that Daily Sentiment Index (DSI) over 90 and all that speculation we discussed from late last week was enough to push it over the edge and force a correction.
So how was breadth, you wonder? Why New York Stock Exchange breadth was flat as a pancake. Yes, the S&P 500 was down 29 points. The Russell lost just shy of 1% and breadth was flat. That is quite an accomplishment. Net volume (up minus down volume) was red, but quite frankly it was worse on Monday than it was on Wednesday.
But let's talk about Nasdaq's statistics, because that's where we saw so much speculation late last week (see the discussion I had here Monday morning regarding the very high TRIN, or Trading Index, reading and speculation). For Nasdaq breadth wasn't so hot as it saw its worst breadth in four weeks. But for Nasdaq, I like to track the up/down volume, because I think it often provides a clearer picture into what is happening.
Net volume for Nasdaq has been negative for only four days in the last 27 trading days. Think about that. Four days of negative breadth out of 27. That's a long time. And since net volume for Nasdaq on Wednesday was the worst reading in over six weeks, that tells you something. It was so bad that Nasdaq's McClellan Summation Index using volume stopped going up. It took one bad day, after so many strong days to halt the rise.
Why is this? I believe it's because like an athlete who doesn't take a day of rest, burnout is a real problem. Corrections are healthy, but vertical moves that don't correct are subject to serious rug pulls. And that's what we saw in Nasdaq. You cannot see that the Summation Index did anything on the chart, because all it did was stop going up. It will now, however, require a net differential of positive 400 million shares to head back up.
There was also a slight change in sentiment. The put/call ratio rose to .85, which is the highest we've seen for this indicator since Nov. 17, which you might recall was the last time we had a down week. This means that the 10-day moving average of the put/call ratio has finally stopped going down and started to head up.
In terms of the Overbought/Oversold Oscillator, you can see it has not come down to oversold, or anywhere close to oversold yet.
Quite frankly, I wouldn't be surprised to see the market rally on Thursday, but I suspect we'll see a bit more correcting over the next week, at least enough to get back nearer an oversold condition.