As we get closer to mid-September I thought we'd take another look at volume.
We'll start with the chart of the Volume Indicator because it now hovers around 45%. I think it is possible it tumbles into that 42% area before we get sufficiently oversold using this indicator.
I (still) don't know if this is a bull market or a bear market but it sure feels more bearish than bullish to me. As noted in prior bull markets this indicator got oversold at 47% and didn't bother to fall much lower than that.
But there is another statistic that gives me pause: We are 175 trading days into the calendar year 2023 and only 41% of those days have seen the Nasdaq with more new highs than new lows. So maybe it's a bull market, but if it is, it is pretty skewed toward a narrow group of stocks.
It's possible all those SPACs are still messing up the data all these years later but I do not recall a bull market that had so many days with new lows beating new highs. The actual Nasdaq Composite is a few percent off the August high and the Hi-Lo Indicator, is at 0.26. In prior bull markets it would dip to 0.70 in a correction.
Getting back to volume, you might have noticed that it has dried up. In fact the 20-day moving average of total volume on the NYSE is now the lowest it has been since just before Covid hit in February 2020.
I am not one who thinks we must have an increase in volume on rallies but I do believe that we tend to get good rallies after the volume gets high. You see, high volume tends to mean capitulation not complacency. The last time we had anything that resembled high volume was during the mini-banking crisis in the spring.
And then there is sentiment. I was shocked to see the Investors Intelligence bulls moved up to 50.7% in the last week. I really believed we'd see them fall back to the low 40s.
It is hard for me to believe we can have a good intermediate-term rally begin when the bulls in this survey sit just over 50%. Just think how fast they would get to the upper 50s.
Yet we are set to get oversold sometime in the next week. It's a conundrum because the two ingredients for a good rally are oversold conditions and negative sentiment and right now sentiment using this metric isn't even close.
Away from that I do have to say I am pleased to see the Utes have now enjoyed their sixth straight day of rallying and are up nearly 5% on the month. They are knocking up against resistance so a pullback would be helpful before they try to eat their way through.
