The shift started a week ago, but it's only become more apparent in the last few trading days. The shift I am referring to is big-cap tech taking the lead. Sure, you saw an inkling of it late last week, but Monday it became more apparent. You see the Russell 2000 closed last Monday at 1818 and Monday a day ago it closed at 1819. Let me remind you that last Monday's Barron's cover was bullish on small caps. In that time, the S&P is up about 50 points and Nasdaq is up over 300 points.
Why does this matter? It matters because when the Russell falters, breadth turns sour. And when breadth turns sour and sentiment is extreme, it tends to be a poor recipe for stocks. And breadth was not good on Monday.
We came into Monday with the McClellan Summation Index needing a net differential of negative 2,100 advancers minus decliners just to halt its rise. Monday's net breadth was a negative 1,200, which leaves the cushion for the Summation Index at negative 500. If you squint really hard, you can see the Summation Index trying to flatten out. I've got my eye on this.
What about Nasdaq and the big-cap rally that's taking place? Well, I still believe it is an either/or market, so if the money that has begun flowing back into big-cap tech continues, it probably means it will do so at the expense of the rest of the market and that means breadth will weaken.
Nasdaq's Daily Sentiment Index (DSI) is currently at 85. That means the runway is short, even for big-cap tech, because once it gets over 90, it becomes problematic. Especially if it is at the expense of everything else, which would weaken breadth. The last time Nasdaq's DSI was over 90 was late August. Breadth was weak then and the first few weeks of September saw a sharp pullback. That's why it's all intertwined and why we focus on both sentiment and breadth.
Away from that, I want to note that the Daily Sentiment Index (DSI) for gold is now 14. The VanEck Vectors Gold Miners fund (GDX) has actually been green for three straight days, albeit not by a lot. Then I saw a statistic that said both gold and the dollar were at fresh 100-day lows. Apparently that has happened only two other times, both back in 1991.
This occurred in both February and September of that year. We didn't have exchange-traded funds for gold back then, but we did have a Gold and Silver Index (XAU). You can see on the chart, both times XAU rallied.
I grant you two instances in the same year 30 years ago is nothing to bet the ranch on, but with the DSI low, I think gold rallies this week.
