Ever since sentiment headed into such a strong complacent mode, just before Christmas, I have noted that the breadth of the market and the various indicators that go along with it have held steady and have not rolled over. That changed on Tuesday.
This change is still very minor, but for the first time since it turned up just after Thanksgiving, the McClellan Summation Index stopped going up. Just after Christmas it needed a net differential of negative 2,000 advancers minus decliners to halt the rise. But by Monday that had been whittled down to negative 200. As of Tuesday, it stands at positive 500. That's the change.
To put this in perspective, on Jan. 2, the day the S&P rallied 27 points, net breadth was positive 660, so we essentially need another day like that or we need to go into a scenario where breadth is strong, regardless of what the indexes do. Otherwise the indicator will start to roll over.
It's too early to see a rollover in it, but that's the change that we saw.
Another thing I find interesting is that the S&P is essentially the same price it was the day after Christmas. It closed at 3239 on Dec. 26, and it now stands at 3237. I realize we rallied hard into the holiday, but the week after Christmas and the first week of the year are typically strong ones. This year there was more chop than strength.
In fact, the Russell 2000 has been red for six of the last eight trading sessions. It's only lost about 1%, so it's not as though there has been a lot of selling, perhaps it's a lack of buying interest. But here, too, the seasonality hasn't worked.
The good news is the more red an index sees, the more it heads to an oversold condition. It's still too soon to say anything is oversold in the short term, but notice how the Overbought/Oversold Oscillators have been leaking since just before Christmas. So much so that Nasdaq's is about to cross under the zero-line. That speaks of that loss of momentum we've seen the last two weeks.
You might have noticed that the banks have been weak since the calendar turned to 2020. They had stalled out for three weeks and now the KBW Bank Index (BKX) is down almost 3% since mid-December. There is some support as it gets into the 108-110 area, but along with the PHLX Semiconductor Sector (SOX), it's something to watch. The banks, like the SOX, have made higher lows since the summer.
Speaking of the SOX, we got the bounce. Now, the key is if it fails on this rally. I think the action looks somewhat similar to early November, when there was a lot of back and forth, but eventually there was a little panic at the end.
Complacency is still in place in the market, and now we have some breadth indicators that have stopped going up. That makes me more cautious.
Finally, I participated in a webinar with Forex Analytix on Tuesday morning, and you can view it here.