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The recent high in the S&P is about 10 points short of the .618 retracement
of the entire decline July 20 - Oct 8. Breadth indicators, such as daily
McClellan Oscillator and Summation, are nicely confirming the rally from the
October low. One of the more puzzling aspects of the rally from the Oct low
has been the relatively light volume on the futures whether one measures by
contract volume or net tick volume (net intraday up/dn ticks). Ditto for the
SPY (S&P depository receipts) which has always provided good volume
confirmations and does so without the reporting lag of the futures.
We are currently in the range of the 9/23 high on the S&P: on 9/23 high, Net
tick volume was plus 4 while it was minus 84 at the 10/20 high. Similarly
OBV on daily futures data showed 12650m on 9/23 and 12370m on 10/20.
Similarly OBV on SPY shows 28703m on 9/23 and 22041m on 10/20. (Values will
vary depending upon starting point - it is the comparative relationship
which is important).
The talking heads would have us believe that a bear market rally must be
sharp and strong on heavy volume and narrow breadth - not what we are seeing
here. Further, we do know that huge sums are flowing into money market
funds, yet it doesn't look like this cash is being committed. Given the size
of the rally to date, I frankly would have expected to see at least one 500+
point Dow day fueled by panicked buyers.
So all is not what is seems here.
Earl
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