Did You Get the Jitters Tuesday Morning?

We saw a little panic creep in, didn't we? But check out this extreme number for the Nasdaq McClellan Summation Index.

Author:
Helene Meisler
Publish date:
Feb 24, 2021 6:00 AM EST

Was it just yesterday that I noted there was not enough fear in the market?

And then, lo and behold, Tuesday morning arrives. And everyone is talking about a crash in the technology stocks. Was there panic? I'd say there was some. The reason I say there was some is because near the low of the day we saw 90% of the volume on the downside for Nasdaq.

Recall just a mere two weeks ago Nasdaq had barely seen a day where down volume was greater than up volume and now we have a day where down volume got to 90%. Well, it didn't stay that way by the close, so it's not that hard to say that some complacency has crept back in, but certainly the morning saw the complacency gone.

But let's talk about that Nasdaq volume again. For months, the Nasdaq McClellan Summation Index using volume has been rising straight up but last week we got to the point where it was extreme. It would have taken just over a net negative of 7 billion shares (up minus down volume) to halt the rise. That was an extreme reading. At the time, I noted that each time we had come close to that Nasdaq had corrected at least 3%-5%.

Fast forward to this week and we are on the other side of the extreme. It will now take a net differential of positive 11 billion shares (up minus down volume) to halt the decline. Aside from the fact that we have never seen a number this high before, stop and consider why it is so extreme.

Nasdaq volume has been off the charts, but even on that the "GameStop (GME) Day" of January 27 saw the highest volume to date at just over 11 billion shares. So, for this indicator to need a net differential of positive 11 billion shares just to halt the decline means it would needs at least three days of normal trading and each day skewed heavily to the positive side. That is extreme. And it makes it oversold.

But now take a closer look and you will see the prior extreme high reading was in March. It was mid-month, not at the end. We rallied a few days and came down again. That extreme was positive 8 billion shares. We needed less at the lows.

In September, we got where we needed positive 6 billion. That was on September 8. We rallied and came back down, needing less at the lows.

In terms of charts, the S&P bounced right off the lower channel line and the Russell 2000 fund (IWM) bounced right off the uptrend line.

The QQQs broke their channel days ago, but they did bounce off support. But look at the volume. Such high volume trading days in the QQQs tend to give us a short-term bounce (and yes, back down again).