The Issue With Nasdaq: What Lies Beneath

Technology stocks rallied Tuesday, but many of them gave up by the end of the day. Yet Nasdaq remained in the green for the day.

The oddity is that net volume for Nasdaq was a mere +86 million shares (that's up minus down volume), so it tells us there was still mostly selling going on underneath. What's more is that the Nasdaq McClellan Summation Index using volume stopped rising two days ago. It won't take much to turn it back upward -- a net differential of +200 million shares will do it -- but it speaks of the underlying weakness volume-wise on Nasdaq.

Over on the NYSE, breadth continues moving right along to the upside. That means the Summation Index keeps moving higher as well. The one thing to watch is that it remains at a lower high. It will take a net differential of +1,000 advancers minus decliners to halt the rise, so it would only be in jeopardy of rolling over if breadth begins to falter.

Can breadth begin to falter? Yes. Oil is overextended (although not bearish, just at resistance and too well loved, as discussed yesterday). The banks have stalled out since rates stopped going up, but on Tuesday rates went up and banks didn't rally. That is something to keep our eyes on.

In the meantime, the transports made a new high, as did the Russell 2000. Both are bullish.

Speaking of bonds, the yield on the five-year note backed off that downtrend line I drew in last week. So far it continues to struggle at that line. There is a loose correlation between these high-tech stocks and rates (notice that when rates started up in September, the FANG & Friends stocks began to falter), so I think this chart is worth watching. You can see in 2017 the drop-offs from moves in higher rates have been steep. This time there hasn't been a marked drop-off (yet!). A move back under 1.8% changes that.

In the meantime, the S&P 500 is the same price as it was on Sept. 12. That was the day the Overbought/Oversold Oscillator got overbought at a lower high. In times gone by, an overbought reading would have meant a market correction to the downside almost immediately. It simply doesn't work that way anymore. But it does still mean a loss of momentum. Instant gratification isn't as easy to come by these days!

It is still too soon to say when it will get back to an oversold condition.