The only thing good about the chop in the major averages over the last week is that we're getting intraday volatility instead of a market that just sits there all day. And as soon as we got a rally into bonds, the Russell 2000 stopped going up and the big-cap tech stocks got the love again. More on that below.
In the meantime breadth was flat, which means the McClellan Summation Index remains as flat as a pancake. As you can see from the chart, it is unusual to see this indicator just go flat. Yes, it did it in early February last year, but as of now that's one of the only similarities to that period of time. In any event, the indicator has not budged in weeks, which is highly unusual.
The flip side is the number of stocks making new lows (10-day moving average) hasn't budged either. In February last year, it was rising and rising at a rapid pace. Last year in early February, the 10-day moving average of new lows was just shy of 100. The current reading is less than five.
But the chart that caught my eye is the Dollar Index. Since stocks made their lows in late October the Dollar Index has been in a steady downtrend. This week the Dollar Index crossed that downtrend line that has been in place for two months. It is in the process of pulling back, perhaps forming a small head-and-shoulders bottom.
I highlight this because if there is a relationship between a weak dollar and stronger stocks, then isn't it possible that a stronger dollar could provide us with a much needed correction in stocks in January?
Take a look at how it tends to move inversely to the Russell 2000 exchange-traded fund (IWM) . The green arrow clearly shows the relationship in September, as it tracked the decline in stocks, the early October rally, the late October decline.
I would note that on the sentiment side of things the Daily Sentiment Index (DSI) for the S&P is back to 88, so one more up day and it would push it over 90, providing us with a "reason" for a pullback. That's what I will watch for.