Deterioration in the technical health of the market?
From this weekend's Barrons:
<<"There's an unhealthy imbalance in the market," argues Richard McCabe, technical analyst at Merrill Lynch. McCabe points out that as the Nasdaq has been steadily setting new records, most stocks have languished. He notes that declining stocks on the New York Stock Exchange beat advancers for six straight sessions before Friday, when winners outpaced losers by a slight margin. Reflecting the weak market breadth, only 26 out of 109 S&P industry groups rose last week.
Other gloomy technical developments include the high ratio of new 52-week lows to new 52-week highs set among Big Board stocks, and scanty volume in puts on individual stocks relative to calls at the Chicago Board Options Exchange. McCabe notes the CBOE put/call ratio has regularly been running at below 50% recently, meaning there are less than half the number of puts traded as calls. Technicians use this ratio as a contrary indicator. Thus, the low put volume is viewed as a sign of complacency among investors and is a negative market indicator. Another contrary indicator, investor sentiment, has been more bullish recently, troubling some technicians.
"There is a glaring, textbook negative divergence," McCabe says. "The Nasdaq and the S&P 500, dominated by large-cap stocks, are outperforming the vast majority of smaller stocks."
The big question, of course, is what these developments portend. McCabe argues the situation will end badly as "the weak majority of stocks drags down the strong minority.">>
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