Wednesday's recovery notwithstanding, the recent slowdown isn't just "a little break" before the advance resumes. A lot of people are throwing in the towel on a lot of stocks, suggesting they're not sticking around en masse for the next wave of bullishness... because it might not take shape anytime soon.
We're being led to this conclusion by the market's breadth and depth, or a comparison of its advancers and decliners, and a comparison of its bullish and bearish volume.
That graphic below compares the S&P 500 to the NYSE's up volume (green) and down volume (red). The daily data is marked by the thin, more erratic lines. The thicker, brighter lines are moving averages of the respective bullish and bearish volume data, used to identify the true trend by ironing out the day-to-day volatility. As one would expect to see, the bearish volume trend started to slide lower in the latter part of March while the bullish volume started to grow. Take a closer look at the past couple of days though. The red moving average line has broken out of a pullback and into an uptrend, and the bullish volume trend line has tipped over. It's interesting simply because while thing have been volatile of late, they've not been net-bearish for the market indices. There's been more bearish volume than bullish volume though.
It's a concern because the volume tide often turns around before the market itself does.
The same basic idea applies to the market's advancers and decliners.
Like the chart above, the chart below compares the S&P 500 to the NYSE's daily advancers in green and daily decliners in red. Also like above, the thin lines are the raw daily data that's too erratic to make much use of. It's the thicker, brighter lines that plot the actual trend... a moving average of the daily numbers. Decliners were falling and advancers were rising beginning in late March. But, last week both of those trends reversed course even before the market itself ran into trouble. In fact, the market may not have been impressive since the middle of last week, but it's not exactly in trouble.
It's just one aspect of the market's inner workings, and is certainly not something to be etched in stone. Stocks were due for a breather anyway, and in the middle of last week the S&P 500 was starting to test some big-time technical resistance. There should have been at least a pause and a test here, if only to validate the strength of the undertow. One would expect breadth and depth to weaken a little. But, this is a little more of a red flag than we'd care to see just yet.
Of course, if there was ever a scenario in which anything can and would happen, this is it. Traders continue to act on raw emotion and headlines more than anything else. It's just one of many things to think about right now.