Wall Street Turns Into Penny Lane

Thursday, May 16th, was the worst day for the S&P 500 since May 1st. So it took until mid-month to get a day with the S&P down 11 whole points. I still think the action is part of the market’s short-term overbought condition.

I would say that the market needs a bout of volatility but the S&P managed its worst red day in two weeks and the VIX stayed red! With the Daily Sentiment Index (DSI) having tagged 9 on Wednesday I would say we still should not be shocked by — heck we should expect — a bout of volatility.

But let’s talk about the speculation in the market that arrived this week. It showed up in many forms. The week began with the meme stocks surging, and therefore skewing the volume indicators as Monday they accounted for 16% of total volume on the NYSE and Tuesday it was up to 21%. It managed to show upside volume as a percentage of total volume skew heavily upward during those two trading days.

Then came Wednesday and with the heavily traded meme stocks down on the day we had our best day in the indexes and the poorest volume to the upside day. No matter how you spin it, all of this said speculation was back in a big way.

But wait, there’s more.

Thursday the meme stocks were down, thus potentially skewing volume, although Advanced Micro Devices AMD showed up on the Active List by midday, which was the first time we had a non-meme stock in the top five actives all week.

Two days ago I noted how the volume on the Nasdaq had surged to 7.3 billion shares, the most since February 2021. Wednesday that volume reading grew to 8.6 billion shares. Thursday it nearly doubled Tuesday’s volume and ended the day with just over 12 billion shares traded on the Nasdaq.

It’s possible my data is incorrect but that is the highest volume I show for the Nasdaq. Ever.

It seems that folks have moved from meme stocks to penny stocks. The three most active stocks on the Nasdaq fit that category. Two were under a buck and one was just over a buck. Together those three names accounted for nearly six billion shares traded. My math says that’s about half of the total volume on the Nasdaq.

Here’s a chart of the 10-day moving average of up minus down volume on the Nasdaq. The last time we saw a surge like this was February 2023, just prior to a 10% correction.

What would you call that? I call it speculation.

There’s one more aspect of this. For weeks now the put/call ratio has refused to budge. I like to smooth it out on a 10-day moving average. It has been rocking back and forth between 0.97 and 1.0 for over three weeks. But this week it fell out of the range.

This week we saw three of the four trading days with readings below 0.90 and the one that wasn’t was 0.90. Heck, we have barely been able to get one reading sub 0.90 and this week folks decided calls were okay.

A market with that much speculation is not healthy and needs a shakeout in my view.

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