Just about a week ago we started to see the air come out of a lot of the speculative names in the market. It happened slowly. I even commented how their upside flings and the love affair with certain groups was getting shorter than it had been. I referenced it in regard to the pot stocks.
The leakage in the market did not start this week but rather it began about midweek last week. I showed you that yesterday with the chart of the breadth of the market. You can see the blue line rolling over much more clearly now vs the brown line (the S&P). This is not the end of the world; it simply means the pullback may seem like it started this week, but the writing was on the wall last week.
Notice that the Overbought/Oversold Oscillator is coming back down now too. It is not close to oversold yet, but it has come off the boil. However the question of the day for me was 'when will we get oversold?' First of all, it's been three days, are folks that addicted to markets going up or is the leakage finally getting folks antsy?
My own Oscillator won't get overbought until later next week. The McClellan Summation Index which is now heading down needs a net differential of +1800 advancers minus decliners on the NYSE to halt the decline. When it gets to +2000 it has stepped a toe into oversold territory. When it gets to +4000 it is at an oversold extreme.
The biggest change this week as I have noted is Nasdaq's volume. From the election through last week there were exactly seven days where the down volume was greater than the up volume. In 2021 there had only been three. Now there have been four such days in the last five. That is a big change (and the leakage you are feeling in your portfolio).
I use volume for Nasdaq's McClellan Summation Index and a week ago I noted it required a net differential of -8 billion shares (up minus down volume) to halt the rise. To show you what a difference the week has made, the Summation Index has rolled over and now needs a net differential of +4.8 billion shares to stop rolling over.
It is quite rare to see us go from one extreme to another. The last time it required this much (+4.8 billion shares) was September 8th. There's that period boxed in red on the chart. So yes, we're back to talking about that fall (September/October) time frame again. Here is a chart of Nasdaq to show you September 8th with an arrow. We had a bounce and came back down
Within the context of all of this Nasdaq had its first three consecutive red days since mid-October (there is mid-October again!), which is four months, so we are talking about a change in the pattern in the last week.
Speaking of patterns, have you noticed that the market has traded lower each morning and spent the remainder of the day clawing or grinding its way back up? I'd guess by now most have noticed that. My general rule is the market shows us a pattern over and over again and as soon as we all see it, then market changes the pattern. It did it with Nasdaq volume a week ago. Let's see if that intraday pattern changes next week.
