Why did it seem like Monday's rally lacked joy?
I mean, breadth was good. The number of stocks making new highs increased (barely, but increase they did) and the small caps even played along. In fact it wasn't even led by the Invesco QQQs (QQQ) which was a nice change of pace.
But the Russell 2000 did close about 1% off its high of the day. And consider that late last week the Russell lost 42 points in two days, so the 11 point gain on Monday felt a bit more like a relief rally than a renewed push. In other words, the last several days -- since we've gotten overbought -- has been a lot of sloshing around.
I mean, even the Transports -- for all the hootin' and hollerin' over the airlines and cruise lines being up on Monday -- were red on the day. The New York Stock Exchange Arca Airline index, XAL, is an OK chart. It looks like it's trying to base, but step back and notice it is down 10% from last Wednesday --and that's after Monday's lift. So, why would folks be so thrilled over Monday's rally when it's entirely possible, even likely, that they thought last Wednesday's move to a higher high (than late April) might be lift off and therefore are still underwater?
Or, what about those beloved semiconductor stocks? I know I pick on them all the time -- I can't help myself -- but they were red all day on Monday, too. And relative to Nasdaq, they have not been terribly great, except for that lift off the lows in March. Since then, it's lower lows and lower highs.
So, despite the good breadth and despite the stocks that came down hard last week rallying some on Monday, there is a lot of going nowhere going on. I call that the overbought reading hard at work. It still has not changed any of the other indicators. That means there has been no persistent weakness in the market -- not enough to matter -- to turn the intermediate-term indicators down.
Sentiment is stretched on some levels (see the put/call ratio's 10-day moving average for example) and the market is overbought. And depending on how thick your pencil is, Nasdaq is just about to fill that gap overhead from late February, something I have heard very few even notice or comment on.
There are many reasons the market should correct, but so far persistent weakness underneath is not one of them. The reasons center mostly on some extremes in sentiment and overboughtness. If we got persistent weakness underneath that would become more problematic and bearish.