Monday, May 21, 2007

The RUT Steals the Show

The Bataan Deadline March continues for me, although it's pencils down on Wednesday evening. Thursday morning I leave for about 10 days on the road (return isn't booked -- not my favorite). It's revealing that I'm looking forward to hitting the road so I can get some rest.


Stocks took off higher on Monday, but the tepid volume proved no match for afternoon selling pressure. All of the indexes closed off their highs, and the Dow even - gasp -- closed down for like the first day in 5 years.

While the index wicks look a little disturbing, it's important to note that the fundamental leadership had an outstanding day on Monday. The IBD100 gained 1.5% as 78 of 100 stocks moved higher. Also, an eye-popping 36 stocks printed record highs. The market internals were superb again as well, and a look at the charts shows noticeable improvement. Throw in a decent TOF Ratio, and it's probably still a little early for grave dancing.

As the mainstream press hung on every SPX tick, the more interesting story on Monday was the RUT. Just when we thought small-caps were trés passé, the RUT quietly turned in Monday's best performance and even notched a new, all-time high. The SML showed that the move was for real, as small-caps saw the strongest volume of all of the indexes on Monday. Going forward, it will be interesting to see if the small caps can follow-through. If the broad rally is to continue, it's a necessity.

The volume sag is about the only thing not to like about the Composite tonight. The 6-year high on climbing Money Flow is a positive sign, and ADX is starting to curl upwards.

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In addition to being a great investment tool, QID also offers a front row seat to investor sentiment. Since QID price is determined solely by NDX derivatives, buyers and sellers have zero effect on price in the chart below. Heavy QID volume isn't "exhaustion" or "bottoming" or any of the other supply-and-demand signals seen in traditional securities.

From a sentiment perspective, the volume you see is actually a revealing type of investor "vote". The voting has been ferocious lately, and the bigger question is whether or not it has contrarian value.

In the past two weeks, QID has set 4 of its 7 highest volume days ever. Monday's 32 million shares set a new all-time record, a clear sign that institutional investors are hedging with QID. The real winner: ProShares.

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The indexes look a bit stretched, but the fundamental leadership continues to look strong. While markets change quickly, they usually throw off important warning signs before the Big One. For now, none of the familiar mayday signals are evident just yet, but tomorrow is a new day.

Until then have a great evening.




Bill Luby said...

Glad to see "the charts" officially unveiled, dk.

I should look at the charts of all the large cap Nasdaq generals every night, but I don't always do so; now I have a place to visit.

Nice job of flagging the QID volume too. It's hard to draw conclusions about a new ETF that seems to attract more interest each week, but I definitely have an eye on the volume as an indicator -- at least as much as the price.

(Rhetorical) Question: how do the Elliott Wave theoreticians treat the QID? Is it still five waves up and three waves down or is it three up and five down for inverse ETFs?

Have a good trip,


P.S. Good work on the gold piece too...

dk said...

Thanks, Bill. The chart list has been up for a while as a reference for the market internals and the TOF Ratio. Once the Tech Ratio perked up, I included it as well, along with a sampling of technology stocks. It's a work in progress.

It will be interesting to watch QID evolve. Of course, if you want to know what QID will look like in the future, open up a long-term chart of USPIX, the original "QID". The nice thing about ETF's is that they print volume!

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