Market / NASDAQ Breadth

I started out just trying to get a feel for today's breadth in the market and dug a little deeper from there. Market Breadth is like taking the temperature of the market, there's no interpretation, these are hard factual numbers so I find it helpful to keep an eye on breadth at least a few times a month and especially at important areas.

You may find some of the charts surprising or you may not, but thus far there aren't many indication if any of building strength in to falling prices which is what we'd call a positive divergence. Lets just jump in from the market trend to today specifically.

Actually, since I have some credit charts too, we'll start there. You may recall yesterday the chart posted showing European Credit really worried about something while European stocks went on their merry way higher; you may recall the maxim, "Credit leads, equities follow". That market maxim proved correct as Spanish/Italian markets were down horribly today, at the same time sovereign yields (the real symptom of the EU problem) today were wider across the board with Spain back above 6% and most other sovereigns at their highest levels since QE3 was announced; it looked like this today.

Note how much higher sovereign debt jumped today.

While Equity Averages did this...

And all of this was signaled in the European credit markets yesterday... (from yesterday's post)

European stocks in dark blue vs credit from yesterday.

As for High Yield Corporate Credit, it seems that since Thursday's CDS roll, quite a few longs took their profits and called it a day as the highly liquid HYG (High Yield Corporate Credit ETF) has been on the decline since last week's roll. As pointed out yesterday, HY Corp. Credit is significantly below where it was on September 13th  while the SPX (green) just broke below that level today.

High Yield Junk Credit is also significantly below the levels from Sept 13th (When QE3 was announced).

In the same way Credit can give us a leading indication, breadth can tell us about sustainability and emerging trends that are not yet otherwise visible in price.

The breadth indicator will always be green while the comparison symbol (the S&P-500 unless otherwise noted) will be red.

 This looks chaotic, but it's not too hard, it's the Absolute Breadth Index and when the readings are high, it's consistent with conditions for a market bottom, conversely when readings are low it is consistent with topping conditions in the market. I've highlighted several areas of lows and highs and their corresponding tops/bottoms. Recent readings are near multi-year lows, consistent with topping activity.

 The McClellan Oscillator (MCO)... While there are several ways to use the MCO, I have found it to be most consistent as a divergence indicator, crosses above and below the zero line are also used for short term trend changes. The MCO gives a positive divergence at the October 2011 bottom and a negative at the March-May 2012 top and another positive divergence at the June 4th 2012 lows, it is now giving a negative divergence that is leading to new lows for the entire uptrend since June 4th.

 Daily NASDAQ 100 Advance/Decline line, obviously this is a cumulative indicator that subtracts declining issues in the NASDAQ 100 from advancing issues, the idea is that it should look like price or it can have a positive divergence that signals the probability of a bottom, right now it is in a negative divergence from the June 4 low rally, this is what I mean when I say many indicators make this rally off the June lows look like a counter trend bear market rally, obviously price doesn't allow for that classification, but numerous indicators do look that way.

 This is the same Advance/Decline line except for the entire NASDAQ composite-every stock trading on the NASDAQ network; it gave a negative divergence at the March-May 1 2012 downside reversal and has been in very negative territory ever since, failing to equal the February highs while price moved above them.

 The Advance/Decline line for the Russell 2000, note how it is in line with the index in the green area and falls out at the 2011 top, again at the May 1,  2012 reversal down and has moved even lower ever since as price has moved to a new high. Essentially far fewer stocks are participating in the advance which gives us a thin market, these can be dangerous markets as they don't have the breadth to support them and we often see volatile moves from thin markets.

 The Zweig Breadth Thrust has some complicated uses, but again, it has always worked well as a divergence indicator, calling out the 2012 reversal to the downside and confirming in yellow, a positive divergence at the June lows and confirming in yellow and now in leading negative position.

NASDAQ 100 Intraday Breadth Charts...

 This is a 60 min chart of the percentage of NASDAQ 100 component stocks above (green) or below (red) their 60 min 50 bar moving average since Sept. 13th. The 24th and 25th were key days for all kinds of underlying weakness including this indicator.

 The same indicator on a 15 min basis, again the same area really saw trouble brewing which may not have been evident by price alone.

 This is the 1 min version, just looking at today. As you can see, breadth declined as the NASDAQ hit intraday highs today. This wasn't what I was expecting, I was expecting something a little stronger today.

 The Advance/Decline line for the NADAQ 100, but on a 60 min basis. I think the finding here is clear as fewer NASDAQ stocks held their ground.

 This is the same chart on a 1 min basis looking at today, we see the same breadth deterioration at the intraday highs in the NDX. What was most surprising was the end of day reading.

  The MCO for the NASDAQ 100 on a 60 min chart, again the area of the 24/25 really showed breadth fall apart badly.

 The MCO on a 5 min chart also saw breadth today deteriorate in to the intraday highs, there was a slight uptick near the close.

 This is the percentage count of NASDAQ 100 stocks making 15 min, 250 bar new highs/lows.

That same area of trouble seen in all of the above charts saw a 60 min 3C negative divergence as well as TSV 18/38 negative divergences which I included simply for confirmation.

In other news, Germany had a technical failure today on a 10-year bund auction of $5 bn euros, receiving only 3.95 bn in bids. This is a safe haven asset, but it seems that bond traders may even be concerned about Germany going out 10 years.

In a further sign of manufacturing contraction, Yesterday we saw a statement from Maersk,
the world’s largest shipping company, who announced capacity cuts on Europe-Asia routes. So much for China bailing out Europe, although that's been a dead horse for a long time. You've seen transports lately, tomorrow I'll take a look at the Baltic Dry Index.

In futures tonight, ES is up about 5 points to $1432.75 so far and NQ is up 10 points to 2785; 3C is in line/slightly positive. Gold mini futures are up a few points, but 3C is showing a deepening negative divergence. Crude is up marginally, also showing a negative divergence, but not a bad as gold's.

The dominant Price/Volume relationship was price down/volume down. There's really not much to stop the market from a correction to the upside, oil looked like it was set for such a move, the averages didn't have strong divergences, but there were a few smaller ones and I'd expect the averages to draft off energy broadly.

I'll bring you any developments that may arise.