Technically we got a lower low and lower high today. It is not clear the market is ready to roll over though. The breadth was +63%. New highs actually dropped from 84 down to 58. Still not seeing a good expansion of new highs. QQQ was relatively weak today while IWM was relatively strong. Some money is coming out of big cap tech and into small cap stocks. I find this interesting given the P/E of R2000 has skyrocketed to 687. It appears small cap earnings have collapsed in the last year. While a lot of that is oil, I don't think it can all be attributed to that. IWM has suffered more then SPX this year, but there are fundamental reasons for that. Piling in here may not work out all that well. I guess we will see.
The range of the price bars on the futures are narrowing up. Volatility is collapsing. That is probably not a good thing given SPX is still below the 200 DMA. There appears to be a little bit of resistance in this area as expected. It remains to be seen if it is insurmountable or not.
There is a slight divergence developing in the red count since 2/22. It is not big enough to be a warning exactly, but does show a slight loss of momentum. Not much else new here. The bulls remain in control.
I can't imagine many people wanting to sell in front of more easing expected from the ECB on Thurs. The real question is whether they will bid stocks up from here in the mean time. I don't know how to answer that. We could easily just mess around in this area.
In Daily update 6/4 Low volatility periods I wrote about the low volatility periods we saw in the early part of the 90s, 2000s, and lately the 2010s. Those periods lasted roughly 3 years. One early sign of the change to higher volatility was a cross of the 12 month MA above the 48 MA. Here is the current chart.
The MA cross clearly marked the end of the other two low volatility periods. I think we should expect higher volatility for the next several years.
Bob
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