There seems to be a new narrative in the market: All news is bad news.
Well, OK, we knew that, because isn't that what happens in a bear market? And hasn't that been the case for months? But this week, I have seen several folks actually blame the lack of liquidity in the market on algos, on "market participants" -- whatever that means -- and my favorite is "market structure." What does that even mean?
Yet, these same folks who are complaining saw nothing wrong when stocks with trillion dollar market caps were going up 5% a day like it was no big deal. Wait, that was normal? That was good "market structure"? That proved there was liquidity in the market?
I am not an expert on market structure or algos, but I know that when trillion dollar market cap stocks go up 5% a day on no news that it is not healthy. It's especially not healthy when it happens while the number of stocks making new lows is on the rise, as it was last summer.
It's not easy to see now, because 2022's numbers got so high, but I ask you to look at the chart of Nasdaq stocks making new lows back to last summer. There were more than 400 new lows in August. I harped daily, but no one cared, because Apple (AAPL) was going up a few percentage points a day, along with a handful of its friends. But while those favored few were partying the majority of stocks were tumbling.
It was not much better in October and look at November, with over 700 new lows. But, no, it wasn't a bear market yet, because somehow the favored few were still awesome.
Now, I ask you to look at that chart again and note that there are 307 new lows on Nasdaq. That's not great, but it is less than 20% of the type of readings we saw a few weeks ago. That means -- for now -- that 80% haven't made new lows. But no one cares, because Alphabet (GOOGL) is on the new low list.
Now look at the cumulative advance/decline line (breadth) and squint hard and you can see that it made a minor higher high on Wednesday than it made a week or so ago. It's miniscule, but it did it, didn't it?
Look at the McClellan Summation Index, where you no longer need to squint, to see that it has turned upward. It now requires a net differential of negative 3,000 advancers minus decliners on the New York Stock Exchange to halt the rise. Sure, it might do that over the next few days, but thus far, the low from two weeks ago it's holding.
And have you seen the high-yield bond exchange-traded fund (HYG) lately? It's up from $76-plus to $78-plus in a week. Oh, sure, this pop may be temporary, like the one in early May, but this one crossed the downtrend line. HYG is now up on the month. Oh, it's by pennies, but up it is.
My own Oscillator gets a little overbought in the next day or so, therefore it's entirely possible we give back this near 5% rally that we've seen since last week, but this time we've got some indicators that look different than they did two weeks ago.
