For the first time in weeks, I can report that breadth was not good during Tuesday's market. If we use net volume, which I prefer to for Nasdaq, that's up minus down volume -- it was the worst in nearly two months. So that dates back to the latter part of June.
Was it bad enough to change the indicators? No, it wasn't, not yet. But it was bad enough to take away the massive cushions the indicators had.
Let's begin with the McClellan Summation Index. Typically I show you the New York Stock Exchange, which uses net breadth (advancers minus decliners). It is still rising. Recall a week ago, when we got overbought I noted that using this indicator, it would require a net differential of net negative 5,000 issues (that's advancers minus decliners on the NYSE) to halt the rise. That's what made it overbought. As of today, it needs a mere net negative 1,400.
Then there is Nasdaq, where I use net volume (up minus down volume). Heading into last Friday, it would have required a net negative of 5.1 billion shares to halt the rise. As of today, it requires a mere negative 800 million shares. To put that in perspective, Tuesday's decline had a net negative of 2.8 billion shares.
That is the loss of upside momentum.
For three days Nasdaq enjoyed more new highs than new lows. That changed back to the trend of more new lows than highs on Tuesday. But we also saw a marked increase in stocks making new lows as Nasdaq's new lows went from 36 on Monday to 96 on Tuesday. The New York Stock Exchange saw new lows increase from 18 to 58 from Monday to Tuesday.
We have had weakening momentum for a week now (the overbought condition) and Tuesday was the day it finally appeared in the statistics. Perhaps it is because folks wanted to square up ahead of the consumer price index report on Wednesday, but with the S&P now at 4122, it would need just over one hundred points to get to that magical 4,230 area that folks think is required to determine if this is a bear market rally or not.
Since I have said we'll watch the indicators for signs, I would say that Tuesday was a step toward weakening rather than strengthening.
Sentiment went from extreme bearishness in June to moderate a week ago. The Daily Sentiment Index (DSI) for the Volatility Index had reached 17 on Monday and only notched up to 20 on Tuesday. So, if the market takes the CPI positively and rallies, that DSI will likely fall again. In other words, don't get too comfortable with the market. I think it's still heading toward more volatility not less.