The Market's Alligator Jaws Keep Getting Wider
With the S&P at highs, the majority of volume is on the downside. I cannot stress to you how unusual that is. Let's see if the jaws can close in the near term. That will tell us a lot.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Note: I am still on vacation (!!!). My next column will be Monday, July 8. Wishing everyone a very happy Fourth of July holiday!
You would think that a week away from the market and I would see some changes in the indicators but I don’t. Well, that’s not true. I do. Despite the 1% rise in the Russell 2000 (and flat as a pancake S&P 500) in the last week, the intermediate-term indicators got more oversold.
I cannot stress to you how unusual this market is. We have the S&P at the highs and the intermediate-term indicators pushing down toward oversold territory. Once again that speaks to how divergent this market has been the last few months. And it seemingly gets more so as time goes on. Think of it as if you were staring at an alligator and its jaws were spread so far apart. Instead of closing they open even further.
The Volume Indicator I use is based on the percentage of the volume in the market that is on the upside. So a high reading (in the mid-to-upper 50s) is overbought. Folks are clamoring to buy stocks, which takes the market toward an overbought reading. A low reading (in the 40s) means folks are selling at a pretty good clip, so that is considered oversold.
In bull markets we tend to get oversold around 47%. In bear markets it tends to get down into the upper 30s or low 40s. I have often found once we get to 42% we are getting grossly oversold.
So how is it that the Volume Indicator now sits at 47% (oversold in a bull market) with the S&P at an all-time high? It can only do that if the majority of the volume is on the downside. The alligator jaws are getting wider.
A few weeks ago I thought as we headed into July we should see these jaws close —we should see the divergence narrow. It remains to be seen if this will happen. It is my expectation that it should (meaning "the others" play some catch up). But if instead of seeing the others rally — meaning this 47% readings slips to the low 40s — that’s telling us a lot about not just the next few weeks but the next few months. It’s telling us how truly weak the rally is underneath.
I will leave you with one final thought on individual stocks. Typically when stocks are down so much already in a strong market and there is bad news it is already priced in. The stock will typically rally anyway. Yet in the last week or so we’ve seen stocks such as Nike NKE collapse, even though it is already down so much. Even Walgreens WBA, a stock I thought no one even cared about anymore, managed to gap down. There may be other stocks that have gapped up but on my watch list I see only FedEx FDX managed to do that.
In bull markets bottom fishing should work. With the S&P at its highs bottom fishing should work. Yet it hasn’t.
