A Pattern Is There, But Not the Stats

Never short a dull market. Then again, even the up day was dull!

What I thought was actually quite bullish about yesterday's action is more anecdotal than anything else. You see, two days ago I showed two versions of the chart of the Nasdaq. One had the potential for a head-and-shoulders top, and the other had the potential for a head-and-shoulders bottom. Yet for two days now, no one has asked about that head-and-shoulders bottom.

A few months ago that was the question of the day in my inbox. Did I see the H&S bottom? Wasn't it there? Wasn't it bullish? Yet here we are with a real one, not one where you can kinda sorta see it, and no one inquires about it. No one asks where it measures to.

The neckline doesn't come in until about 2700, so there is room to get up there and fail. But if it goes through, it measures back to the old highs of 2850.

Now before you get excited over this bottom, note that Nasdaq's statistics were still of poor quality. Total volume wasn't bad, but upside volume as a percentage of total volume was only 69%. There were fewer new highs than last week as well.

The net differential between upside volume and downside volume on Nasdaq for the past two days -- Tuesday's net negative reading of 845 million shares and Wednesday's net positive reading of 871 million shares -- gives us a total positive reading of 26 million shares.

If we add up Nasdaq's decline on Tuesday of 17 points and its up day on Wednesday of 46 we get a net addition of 29 points.

This would be as if Nasdaq had an up day where it gained 29 points -- more than a 1% rise -- and up volume and down volume were absolutely flat on the day. You would have to be a bit leery of Nasdaq's rise, wouldn't you?

In fact, the statistics on the NYSE, while not exactly impressive either, are at least more impressive than Nasdaq. At least the NYSE had an increase in stocks at new highs. At least the NYSE had 80% of the volume on the upside (90% would be preferable). At least the number of stocks making new lows on the NYSE is not growing the same way it is on Nasdaq.

If we do the same mathematical exercise on the NYSE with the S&P as we just did with Nasdaq, we see the S&P up over the past two days by about 12 points, with net volume of +450 million shares. Very unimpressive for such a gain on the S&P, but at least it was a gain you can see.

To put this in perspective, the gain on Nov. 30 on the S&P was 11.42 and the net volume figures that day were +889 million. I'm sure you can see why I find the statistics somewhat lacking.

Of course, it's usually not when they look the worst that the market goes down hard. I have a button that says, "If it looks great, it's too late." Now, if only we could get the market to look great!

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Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.