Climbing a Wall of Worry While Whistling Past the Graveyard

The question that has filled my inbox in the last two days has to do with oil and interest rates. How can the stock market keep going with rates here and oil here?

Is the market whistling past the graveyard, or is it rallying on a Wall of Worry? The answer is both.

I have been harping away at the Industrials and Banks failing to join the party for two or more weeks now. Clearly, they see the rise in oil and rates as a problem, don’t they?

And the Russell 2000? It’s already filled the gap up from two weeks ago, on April 17^th. Same with the Midcaps. So clearly they see the problem of rising rates and oil, don’t they?

The semis (SOX), however, don’t see rising rates as a problem. Because that’s where the money has been flowing. I admit I look at so many charts in my pile having gone nowhere or down in the last few weeks, and then I look at the SOX, and I think once again, we have a group that sucks the life out of the rest of the market.

In any event, you can see that the rest of the market does care about rates and oil because the Overbought/Oversold Oscillator has zipped right back under the zero line. It is based on breadth, not price, which tells you there is no upside momentum whatsoever outside of semis and some tech stocks.

Breadth has turned lower. Oh, it can save itself, but there is now a clear divergence between breadth and the S&P. The former is rolling over, and the latter is milling around at the highs.

Breadth has been so poor that the McClellan Summation Index has stopped going up. It will now need a net differential of +1000 advancers minus decliners on the NYSE to turn back up. Nasdaq’s Summation Index, which I showed here last night, now needs a net differential of +3.6 billion shares (up minus down volume). We entered Wednesday with that number at +1.4 billion.

The new highs have been pathetic for weeks now. But the new lows had not picked up. However, after Wednesday, that too has changed. They jumped up to 153 on Wednesday for Nasdaq. And there were more new lows than highs on Nasdaq.

I am still waiting for a jump up in the VIX. It made a small attempt to do so on Wednesday, but I await more.

The put/call ratios have not shown much bearishness in the last few days, except that over the last week, the options traders are buying puts in the Russell. That put/call ratio has started to rise. There is a caveat: these options don’t trade much, and they lack volume, but the same way most of March saw a rising ratio in the Russell, we are seeing it again. So the options folks also see rates and oil.

So there is the tale of two markets. Or should I say four markets: Rates, Oil, the 493, and the SOX.