Enjoy It While It Lasts
Well, I'm sure if you took a poll Thursday morning and asked what sort of day lay ahead, the overwhelming answer would have been "flat." I know I surely would have said that. With the Intel (INTC) report and this morning's employment number looming, we would typically see a quiet day, so that rally really was surprising.
But as surprising as yesterday's move was -- in terms of how much the averages moved prior to these big announcements -- what was more interesting was how that Russell 2000 buy program mistake from a few days ago has managed to skew the statistics on the Nasdaq.
I mentioned this yesterday as a possibility, and now it seems to be a reality. That surge in the number of stocks making new highs during Wednesday's action might just prove to be a peak reading. The Nasdaq saw 105 stocks make new 52-week highs on Wednesday when the market was essentially flat all day. Then yesterday, when the market was up, up and away all day, the number of new highs was a mere 54.
It's not just that yesterday's reading was half that of the day before. It's also that with Nasdaq making a new high for this rally, the reading of 54 is just three stocks more than the Aug. 23 reading when Nasdaq was only at 1838. This is a negative divergence. Problems are clearly beginning to develop.In addition to that, the oscillator, which was already hovering in overbought territory, did not manage to make a higher high yesterday. We now have another minor negative divergence. And based on the way the math works out, it is unlikely to manage a higher high even if the market is up Friday. (This is being written Thursday night, well before we know what the employment number is.)
Overbought/Oversold OscillatorsFor more explanation of these indicators, check out The Chartist's primer.
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