You might have noticed that I've done a lot more complaining about the market lately, mostly in the last week or so.
Why is that? Because there are some changes that have taken place.
I can't say I'm bearish because there are not very many negative divergences of consequence and the indicators haven't really rolled over with any oomph. But as I noted late last week, it's hard to be bullish right now.
Up until a week ago breadth was quite good, leading the path forward. The Cumulative advance/decline line made new highs almost daily, the McClellan Summation Index (based on breadth) pushed upward every day. The number of stocks making new highs, while not terribly explosive, was moving upward.
In the last week, though, breadth began to lag. For example, last week the S&P added 10 points and breadth was flat as a pancake. That's not awful but it is a far cry from late January, early February when we had a week with the S&P flat and net breadth gained 3,300 issues.
In the last week the McClellan Summation Index has flattened out and is threatening to roll over. Friday's rally did not turn it back up. The number of stocks making new highs on the NYSE peaked on Feb. 22 (so far). Friday's rally to a higher high (on a closing basis) for the S&P did not see an increase but a contraction.
The number of stocks making new lows has not increased enough to fuss over. That means the selling has been minimal. However, a close-up snapshot of the 10-day moving average of new lows shows a creeping rise (it looks more dramatic because this is such a short-term chart) from 8 to 10+, which is nothing to write home about. Nevertheless, do note that it is trying to make a higher high than the minor upswing in mid-February. It's a subtle change but I think we can agree the rise in the last week is the largest we've seen yet.
The small-caps underperformed last week. That, too, is a change. The Transports have been red for six straight trading days. They haven't broken 10, 400 (the uptrend line) yet but six straight days of red is not strength, and not when the other indices were all up on the week.
We are more overbought than we are oversold. When the market is oversold stocks rally with follow through. When it is not, they tend to peter out quickly.
In terms of being overbought let's take a look at the daily net change in the spread between the DJIA's 50- and 200-day moving average lines since it is now over 40, which you can see is a rare event. When it got under -40 near the lows we reviewed this as being an extreme oversold area.
There are three other instances of readings this high. None were outright bearish. Rather, the market went into an extended period of sideways action.
Point A was in the spring of 2009, coming off that big low. A few days later we were lower. Two weeks later we were higher. Six weeks later we were 5% lower (I am using the S&P 500 not the DJIA but the DJIA had the same moves). It was basically a huge sideways for two months.
In 2015 and 2016, point B came after a decline which led to another rally, but you can see the market shuffled around for a month or so before we collapsed again. Point C gave way to a minor correction but here, too, it was a bit more than two months of sideways trading.
We already know sentiment is elevated. Some places show giddiness but most just show elevated levels. Therefore, even if the S&P chooses to breakout over this well watched level I'd have to see a big change in the indicators for me to believe we have a lot of upside right now. My guess is a breakout would bring us "giddy."