Monday’s Gain Was Really, Really Weird

Posted by jbrumley on October 2, 2023 11:56 PM

In sports, an ugly win is still a win. The same goes for the market. Even so, an ugly win like Monday’s is worth exploring. It suggests something is wrong is with market, even if stocks didn’t technically “lose” the day.

And in this case, there are two things potentially wrong with the bullish effort.

The first red flag is the sectors that did the vast majority of the day’s heavy lifting… technology stocks. Well, telecom stocks actually fared better with their 1.4% advance. But, there are so few of them, it’s not exactly a market-moving kind of undertow. Tech stock only advanced 0.9%, but there were tons of them contributing to the effort.

Problem? Not that every sector will rise and fall by the exact same amount every single day. However, Monday’s disparity is highly suspect. Good, sustainable rallies tend to have better participation rates than this. Monday’s action almost looks like traders were unwinding their recent flight to safety, shedding their sure things in utilities, energy, and even healthcare just to free up some cash to buy (or repurchase) technology. That’s bullish on the surface. This, however, is not how you want to see it happen. We’d still like to see a little smoother, more transitional shift. Jolts like this tend not to last.

The other oddity from Monday? While the indexes eked out a gain, breadth and depth were actually bearish.

If it seems we’ve talked about these details more than usual of late, you’re not wrong. We have. We’ve just done so, however, because this information has been so telling and so unusual of late. It’s told us not to trust trends as they appear on the surface. And, these tips have proven beneficial. They’re still suggesting things aren’t nearly as bullish as they seem.

Take the NYSE’s advancers ($ADV) versus its decliners ($DECL) as an example. There were only 547 NYSE-listed stocks that ended Monday with a gain, versus 2,354 that lost ground; somehow the market ended higher anyway. [As was noted, technology stocks did a disproportional amount of heavy lifting. Also note that the thicker, less volatile lines on the chart below are moving averages of the more volatile, thinner daily data… meant to show the bigger-picture trend.]

In the same vein, there was less “up” volume ($UVOL) on Monday than “down” volume ($DVOL) on Monday… by a lot.

Also note that in both cases, Monday’s bearish depth (volume) and breadth (advancers vs. decliners) merely extends trends that have been developing for several weeks now. The NYSE’s daily advancer moving average, for instance, continued to slide lower to a multi-month low reading of 1,119. The NYSE’s bearish volume’s moving average line hit a multi-week high of 823,821, underscoring this shift to net bearishness.

The NASDAQ’s breadth and depth isn’t quite as net bearish yet. But, it’s clearly moving in the same direction. The daily decliner ($DECLQ) average is now well above the daily advancer ($ADVQ) average, and both data sets continue to diverge.  Here’s an overlaid comparison of the two, two-point data sets. [Red is bearish, blue is bullish.]

It may mean nothing. The bulls may find a way to start what ends up being a longer-lived advance. We only use this kind of information to help us weigh the odds, and we should be using it with other tools and data sets.

On balance though, the clues being dropped by Monday’s odd action is bearish. It’s up to the bulls here to prove the data is misleading.

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