Traders have been experiencing an understandable case of whiplash the last few days. More than one person contacting me has commented on the confusing nature of the market action. To try and make sense of what has been going on, I included two charts above, both of which I find helpful in gauging underlying market trend.
The top chart is the Cumulative NYSE TICK and represents the number of upticks vs. downticks across all NYSE shares each minute of the day. By cumulating that time series, in the manner of an advance-decline line, we can gain of sense for accumulation or distribution across the broad stock universe. (Data obtained from e-Signal). We can see that, throughout the year, the cumulative TICK followed price closely, confirming new price highs with new highs in the cumulative line. That suddenly stopped after early September, as the later September price peak occurred on a falling cumulative TICK line. My read at the time was that the broad market had ceased to function in a bull market, due to weakness across small caps and midcaps.
We can see that the decline in Cumulative TICK has continued with the recent market decline, as we're now seeing the weakness among small and midcaps extend to the larger caps. Of particular note, the Cumulative line has breached its early August lows.
The bottom chart is a bit more sensitive and is based on upside and downside strength. What we're looking at is also a cumulative line, but this is a net total of the number of stocks each day closing above and below their upper and lower Bollinger Bands, across all NYSE shares. (Data obtained via Stock Charts). Here we can see that the cumulative Bollinger Balance line peaked early in July, dramatically underperformed at the August and September peaks and now has fallen off the face of the earth as few shares are trading with strength.
By cumulating breadth data--I find these measures much more sensitive than the standard advance-decline line gauges--we can see what is happening over time across all stocks, not just the large names that dominate the cap-weighted stock indexes. It's because of the weakness in these measures that I have not been inclined to buy the market simply because it's oversold.
Further Reading: Interpreting Market Action With NYSE TICK