Tuesday Rally Was More Broad
A huge oversold rally but the statistics were a little better on Tuesday than on Wednesday.
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Well, that was an oversold rally, wasn’t it? And gosh, it looks so impressive on the index charts. Even on the charts of the bank stocks. And heck, my new favorite group, the Transports, surged to an all-time high, something they haven’t done in three years.
But–because there is always a but—statistically, Tuesday’s rally was better than Wednesday's. On Tuesday, we saw 80% of the volume on the upside—a good sign. On Wednesday, when the indexes broke out, the NYSE had a mere 66% of volume on the upside. That is not so impressive.
On Tuesday, we saw net breadth at nearly +1800. Wednesday, that number was +650. Even Nasdaq was similar. Tuesday we saw 77% of the volume on the upside and Wednesday it fell to 64%.
You can see there is the potential for a divergence to set up because breadth is still lower than the S&P now. We’ll watch this because the McClellan Summation Index is on the verge of finally halting the decline.
The flip side is that new highs finally soared. The NYSE had nearly 500 new highs, while Nasdaq was just over 650 new highs. Pretty good. But Nasdaq’s new lows continue to expand as well. It really is a stock pickers market.
Sentiment-wise, I expect everyone is bullish now. Those high put/call ratios of the last few days are gone. Wednesday’s reading was .84, which isn’t terribly low but we haven’t seen a reading that low since October 18th. This low-ish reading did not change the ten-day moving average of the put/call ratio as it remains stuck at .99.
The Daily Sentiment Index (DSI) for the S&P is back at 78 and Nasdaq is at 75. In the last two presidential elections, these both started the rally at readings significantly lower. Right now I’d consider them leaning high but nothing to write home about. If we keep rallying, they will be well into the 80s in a few days though, then we’ll fret.
Speaking of the DSI, the Bond DSI came down to 16 just as we head into the Fed meeting on Thursday. Just over a year ago this got to single digits. My call on the bonds has been dead wrong, but I just can’t seem to shake the view that rates need a pullback. Let’s see if the FOMC accommodates me or forces me to wait until that DSI gets to single digits.
If the wait is for single digits, then I suspect the stock market will start to care more than it has the last few days.
