Stock market update

In the two weeks there have been two days in which the ratio of downside-to-upside volume has been at least 90%.  This is a sign of internal weakness and, when it occurs at or near a rally peak, is usually a signal that the market is poised for some additional weakness. 

Meanwhile there has been quite a bit of sector rotation in the market with a handful of sectors strengthening while others weaken.  The weaker industry groups include the golds, the oils, and the defense stocks.  Consumer discretionary stocks have shown surprising strength as witnessed by the recent higher high in the SPDR Consumer Discretionary ETF (XLY).

The cross-currents within the broad market are best illustrated by two charts: the Dow 30 Industrials and the S&P 400 Midcap Index (MID).  Note the higher series of highs in the Dow…

…against the lower series of highs in the MID.

To get a renewed broad market “buy” signal we should ideally see the MID reversing this series of lower peaks by closing above the mid-February high at 1,125.  We should also see a reversal of the recent NYSE volume trend with at least one day of 80% and preferably 90% upside volume along with an expansion in the number of stocks making new 52-week highs.  We should also see a diminution of new 52-week lows below 40 for a few days to let us know that internal selling pressure has completely dissipated.