Oh, so big deal, we sold off late in the day to close in the red for the first time in more than a week. It was no big deal. But it is a sign that we’re heading into this overbought reading in the latter part of this week.
You can see the Overbought/Oversold Oscillator inched up a bit more Tuesday and as I explained Monday, I expect it will head upward again Wednesday. And next week, I expect the Oscillator to head down, thus making us overbought.
But let’s talk about volume.
I have this view that volume tends to go up during declines and down during rallies. For the New York Stock Exchange, that has mostly continued to be the case. For example, in the week leading up to our last correction — the week ending on Jan. 22 — average volume on the NYSE was 4.8 billion shares. During the week that we fell 4%, average volume on the NYSE was 7.3 billion shares. That’s quite a difference.
The last two days we’ve averaged 4.7 billion shares on the NYSE. When we go to Nasdaq, though, it’s a somewhat different story. Average volume the week ending Jan. 22 was 6.6 billion shares. Average volume the week we fell was 8.6 billion shares. OK, that seems to track somewhat closer to the NYSE numbers. This week Nasdaq’s average volume is 8.6 billion shares. That is different.
I think it’s all the speculation that is back but it is something else, too. Since the calendar turned to 2021, Nasdaq has seen exactly two days where the up volume is less than the down volume. Only two days. That’s something considering we had that big whack two weeks ago.
Now take a look at the year 2000. No, I am not talking bubbles and blow-offs, but I do find it curious in that run, Nasdaq had from late January 2000 to the high in mid-March 2000 of 28% there were a mere four days that up volume did not exceed down volume. I do not see any other close comparison.
I track the McClellan Summation Index for Nasdaq using volume. You can imagine with net volume being negative a mere two days this year it has not had a hiccup to speak of. Because of that, it will now take a net differential of negative 7.5 billion shares to halt the rise. Go back and look above: This week we’ve averaged 8.6 billion shares, so to get a net negative 7.5 billion shares would be asking for a lot of weakness.
What does that all mean? There is underlying strength. It also means Nasdaq is overbought using this metric. The last three times it has needed a net negative of 6 billion or more, Nasdaq has corrected 3%-4%. We’ll see if that continues to be the case next week.