How many times did you hear how incredible the stock market was on Wednesday? I'll bet it was so many you lost count. So let's talk about how incredible the rally on Wednesday was.
First, as noted Tuesday, breadth stayed green, so none of the indicators changed during the sell-off. Well, breadth was green, but it lagged on Wednesday, therefore none of the indicators changed from the rally, either. Since, however, everyone is in awe of Nasdaq, let's look at the statistics.
Volume was low. I usually don't fuss over that because low volume is the hallmark of rallies for the last decade or more. What I find interesting about Wednesday's low volume rally is that it was the lowest volume since July 10. That's the blue arrow on the chart. I'm not showing you this because the next trading day the market was up and closed down; I am showing you this because the ensuing two weeks saw-wait for it-volatility!
Sticking with volume, net volume on Nasdaq was terrible at positive 200 million shares. Let me remind you that Nasdaq was up 2% on Wednesday. This brings me to the McClellan Summation Index using volume for Nasdaq. It peaked a few weeks ago, but take a look: It hasn't participated in the last 1,000 points on the upside. In fact it now requires a net differential of positive 2.4 billion shares to halt the current downward move. That is highly unusual for a market near its highs.
Let me finish up this discussion about Nasdaq, by noting the number of stocks making new highs. They are less than half what they were two weeks ago. Heck, there were fewer new highs on Wednesday than there were on Tuesday. So all that talk about expanding participation is not being seen here. The New York Stock Exchange has better statistics, not Nasdaq.
On the sentiment side of things, I was wrong: The Investor's Intelligence bulls only made it to 58.1%; they couldn't quite convert enough to push it over 60%. They did, however, convert enough to get the bears down to 16.2%, which is the lowest since January 2018 when we saw the bears at 14%.
The one-day reading for the put/call ratio moved up to its highest reading since July 31, so clearly some folks got a bit more concerned on Wednesday. But the moving average lines continue lower. In fact the 21-day moving average of the exchange-traded fund put/call ratio has sunk to its lowest reading ever.
I will end by noting that the Daily Sentiment Index (DSI) for the Volatility Index came right back to 10 on Wednesday. I still think this means we should expect volatility in August, no matter what the next few days bring us.