I was just gathering information and doing my nightly routine when I decided to take a look at the market's breadth as I haven't in a while.
With 3C, it's one thing to see something I haven't seen before (I mean the depth and length of the negative divergences), but I've had enough experience and been in similar situations to trust it. Then to see it get even worse, actually so bad that I can't find anything much worse in almost a century of market history. Again, I have a lot of experience with my indicator so even if I haven't seen it before, I still trust it (however there have been numerous other confirmation signals). However, to see lagging indicators confirm what I've been seeing is something else.
I've been using breadth indicators for a decade, so I know what the extremes look like, I'll just say what I saw left me shocked. Breadth indicators lag, unlike 3C which is a leading indicator. However, they are useful, they're like an MRI for the market, everything may appear ok on the outside, but the MRI can reveal some things that you would otherwise not know about.
So this is a breadth post, but I'm also going to include some of the other charts from what was going to be my original post.
First today's dominant Price/Volume relationship...
All of the averages are dominant in Price Up/Volume Down which is the most bearish of the 4 relationships.
Here's a chart of the S&P-500 with the P/V relationships. Price Up/Volume down being the most bearish is red, Price Up/Volume Up being the most bullish is green, Price Down Volume /Up has a generally bearish slant, but must be interpreted within the trend, it is orange and Price Down/Volume Down is the most benign so it is yellow.
Below the price chart is the actual count for each dominant relationship. Notice how the most bullish fades as the rally develops and the most bearish increases as the rally continues, in fact, today was the highest reading for the most bearish relationship since the rally started.
Next the Risk Asset/ Credit / Sector Rotation layout...
Here commodities are brown, the Euro is blue and the SPX green, commodities underperformed all day, they were along the lines of the Euro which underperformed the SPX. All are divergent now, the last divergence was Monday, sending the market lower Tuesday (that's just a note, not a prediction, but the divergence isn't showing a healthy move in the market).
Longer term, Euro/SPX divergences
These are longer term High Yield Corp. Credit/SPX divergences.
And end of day sector rotation, Tech fell in the afternoon and saw a little boost in to the close, Financials remained fairly strong all afternoon with a slight fall in to the close, Defensive Utilities, Healthcare, Staples, maintained pretty well, Energy, Basic Materials and Industrials fell in to the close (closing trade is the most important of the day).
These are the Breadth Indicators and this is where it gets a little shocking, my first reaction was, "This market is done", but that doesn't even do the extent of the readings justice.
In green is the actual indicator, in red is the S&P-500 unless otherwise specified. This is the % of stocks that are 2 standard deviations above their 40 day price moving average. November we saw a divergence and the market dipped, recently the number has gone from 50% of all stocks (these are the really strong stocks) to 3.95%! In other words, the strongest stocks were at 50% and they may have been internally falling apart already, but now they have fallen apart in price and represent just under 4% from 50%!
Stocks 1 standard deviation above their 30 dat moving average, these are strong stocks, note that a dip from about 55% to 45% in July sent the market down 18%. Recently they have gone from nearly 80% to 21.5%! That is a shocking divergence/decline. That's also why AAPL falling apart is important as AAPL is 1 stock that can move the market higher and while it's been doing that, a majority of stocks just collapsed.
These are stocks above their 40 day moving average, which most stocks should be with a rally like this, you can see what a slight negative divergence did in July, there was a positive divergence in to the October bottom and now a sharp negative divergence with the % of stocks dropping from 87% to 57%.
This is the McClellan Oscillator , note the July negative divergence as well as the October and November positive divergences, now look at the current negative divergence, if the July negative divergence sent the market down 18%, well I'm kind of speechless. Also note compared to the October/November high, this rally has been negatively divergence the entire time, it is now just that much worse.
This is the NASDAQ Composite Advance /Decline line at the end of the bear market rally in 2008, the comparison symbol in red is the NASDAQ Composite. Most of the damage in the 2008 decline was done after this point.
Here's a close up of the same now...
Here is the true scope of the divergence, the white box is a positive divergence in the A/D line, in red a negative divergence at the 2011 top, look how much worse it is now.
The Russell 2000 Advance/Decline line never even went negative at the July sell off, it certainly is now.
The Zweig Indicator with negative and positive divergences (the SPX is red), this is the worst divergence on the chart.
I think these charts speak for themselves, but I will say after a decade of looking at breadth charts, both positive and negative, I've never seen this level of negative activity.
