Alright, so we got a little -- OK, a lot -- overbought and the market stalled out and pulled back. Isn't that the way it's supposed to work? You can't expect an overbought market to go up forever, can you?
If we look at a chart of the Invesco QQQ (QQQ) we can see that they filled that late February gap a week ago and have gone nowhere since. That doesn't make it bearish, it makes it overbought. So what would make it bearish, you ask?
Let's just discuss the chart before we get to the indicators. To make the chart bearish, you'd have to first see a break of that uptrend line that has been solid for a month. Even Wednesday's early day whoosh only took it down to the line. The basic rule on a trend line is that two points make a line and a third confirms it. The more points on the line the better the line (yes you learned that in geometry class too!). With four points I would call this a good line, so a break of this line would fall into the category of "doing something wrong."
Then there is that low at $224 from Wednesday. I would think making a lower low would make the chart bearish. Breaking the line and the prior low would be doing two things wrong and thus would be bearish for the QQQs.
Now let's talk about the indicators. I have harped for two weeks now (at least!) that the number of stocks making new highs on Nasdaq refuses to increase. On Tuesday we saw an increase of six more stocks making new highs (vs. May 11), which, I would say, is nothing to write home about. Especially when you consider that there were well over 300 new highs in January, which is when we also so the Nasdaq Composite trading up here. In other words, Nasdaq's rally stalled out two weeks ago and has simply been marking time ever since.
But the really interesting statistic in Nasdaq land is for the McClellan Summation Index. For Nasdaq, I use up-down volume (for the New York Stock Exchange I use the advance-decline line). Considering Nasdaq's net volume has been good for the last two weeks, it surprised me to discover that a net differential of negative 500 million shares (that's up minus down volume) would halt the rise in the Summation Index. That is not a very big cushion. Thursday's market saw a net differential of just over a billion shares (to the negative side) to put that in perspective.
On the sentiment side of things the 10-day moving average of the put/call ratio is moving extreme levels now. My estimation is that the moving average ought to turn upward early next week.
I am going to focus on that up-down volume for Nasdaq, because if that turns more negative it will turn the Summation Index and that would be a change in an important indicator.