Things appear to have broken down pretty quick over the last few trading sessions. What took 6 days to build only took 3 to destroy in the S&P 500. Apple came out with weaker-than-expected numbers after the close today, as did Netflix. It doesn’t feel like we have experienced enough pain for a bottom. Although there is one chart that sticks out to me that indicates we might see some type of relief or consolidation.
Below is the percent of Nasdaq issues hitting record highs. I’ve put green dotted lines to show when the figure has broken past 10% and then come back up. As you can see this has typically happened at or near at least short-term bottoms. The most recent market action has taken us to touch the 10% threshold and back up, so it’s not as clean-cut as previous instances. Now a chart like this should be filed under ‘chart porn’, and not traded upon by itself but it’s success rate since 2010 is pretty interesting.
What is keeping me considered about equities and not fully convinced everything negative has been baked into this market is the fact small caps have been getting destroyed. We last looked at this chart of IWM back on July 19th, due to the negative divergence with large caps, right before this recent drop. As you can see, over the past two days, small caps have sold off a lot harder than large caps as traders are likely shedding their higher beta positions. We are seeing the same type action in 10-year Treasuries, with yields dropping to new all-time lows, closing out today at 1.40%.
Tomorrow Tim Geithner will testify before the House Financial Services Committee about the U.S. recovery, Europe, and the fiscal cliff, which could give traders some reasons to kick up volatility a notch. The market will also be looking to digest earnings data tomorrow from Boeing, Delta, Lilly, Pepsi, and Whole Foods. Be smart out there.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.