I would like to tell you that Friday's rally changed the indicators, but I can't. The only thing that changed was that the oversold rally remains choppy.
You might have noticed that this current decline has a different feel than the last two declines in April/May and August/September. The first thing you will notice is that in early April, the S&P 500 made a higher high. It did the same thing in August. This time not so much.
Then there is the fact that those two peaks literally turned on a dime, heading south immediately after sucking folks in on the action (higher high). This time around we got into the area and milled around for nearly a month. Oh sure, some will say that the peak around Thanksgiving (when we got intermediate term overbought) was a higher high but not really. April took out the March high and August took out the June high. November didn't come close to the prior (August) high.
Then there is the news. In April, the news wasn't great. The war in Ukraine had just begun a month earlier and gas prices were screaming higher, along with inflation. In August, it was all that anticipation of lower inflation that got folks excited but in reality that's all it was at that point: anticipation. The Fed was still on course to keep on hiking 75 bps for what seemed like forever.
But in November, the news was actually what everyone thought they would see last summer. The Consumer Price Index had come off the boil, interest rates had stopped going up, the U.S. Dollar had started to fall and gas prices were down by a wide margin. The news was actually good. Yet the market couldn't muster the same enthusiasm. Makes you wonder if that old adage about buying the rumor and selling the news might actually have some teeth, doesn't it?
Yet, the fall off from the high is also different. As noted above, we didn't just fall off a cliff as we did in the prior two declines. We had one week of selling after the month of sideways and then we stabilized. Even the McClellan Summation Index hasn't given up like it did in August (the March rally didn't see it climb all that much). It's taken nearly a month for it to meander its way from +350 to the zero line. In August it went from just over +800 to the zero line in three weeks.
I think we can see it if we look at the chart of the PowerShares QQQ Trust ( (QQQ) :Nasdaq) In mid May, the QQQs were around $280-$290. Now, they reside just under $270. That's the big cap non-bank stocks on Nasdaq.
Compare that to the Invesco Nasdaq Next Gen 100 ( (QQQJ) :Nasdaq) which doesn't trade very much but it's the 'Juniors'- not the big caps. The QQQJ is trading exactly where it was in mid May, and nearly 10% off the October lows while the QQQs are around 3% off the October lows. This decline has been more about selling some of those big/mega cap stocks than it has been about selling everything. The prior declines saw much more widespread selling. Also notice the QQQs couldn't even make it to their downtrend line on this last rally.
I would say this means the troops have had their bout of selling and this last leg down has been more about the generals getting sold. So what have we learned? We've learned that there really is truth to those old market adages!
