I would have thought the market would not have waited until the end of the day to rally, but it did finally come around. Yet oddly enough nothing changed in the indicators.
Breadth was the best it has been in eight trading days, but it hasn't helped the McClellan Summation Index stop its decline. It still needs positive 2,400 advancers minus decliners to do that and obviously more to turn back up. But let's talk about this indicator for a minute, since I realize I discuss it ￼on a regular basis.
It is not a holy grail for the market. What it is though, is a guide. It tells us what the majority of stocks are doing, and if the majority are heading up, it's obviously better for longs. And if the majority are heading down, it is better for shorts. It does not always turn on the exact high or exact low.
In fact more often that not, what we see is the Summation Index rolls over and the indexes rally again, but the Summation Index either can't make a new high or can't even manage a turn back up. Recently I have used the January/February example that led to a very scary decline. But let's look at another time that the decline was much more contained.
In the first half of 2019, the Summation Index put in a big high, backed off, and rallied to a lower high while the Russell 2000 made a higher high (a negative divergence). It led to a pullback of 7%, not a disaster.
So sure, there are times -- like the fall of 2018 and February of this year -- that the divergence leads to a much bigger decline, but it is not always the case.
I have to report to you though, that the number of stocks making new lows has had a minor uptick. Last time I noted this I also noted that there had been no commensurate uptick in the 10-day moving average of new lows, but that is no longer the case; now the 10-day moving average is rising. With the moving average at 5 and the absolute number not even over 20 yet, it's still minor, but the direction -- up -- tells us there is some deterioration underneath. And yes, Nasdaq's looks similar.
Another chart to keep an eye on is that of the Transports. They are down just about 10% in the last few weeks and there is a lot of support in the 8500-9000 area; 8,500 would fill a gap and tag the uptrend line, and 9,000 is the low from the late May gap up and the June 11 decline. This group was hot a few weeks ago and now has been left for dead. It needs to hold.
In any event sentiment hasn't changed much as it remains complacent so all the last few weeks has done was take the froth out.