A Few Perspectives on the Recent Stock Market Weakness

* Pessimism Returns - As of Thursday, we once again see equity put volume exceeding equity call volume. That was one of the patterns that stood out during the late February/early March market decline. Since 2004 (N = 843 trading days), we've had 49 occasions in which equity put volume has exceeded equity call volume. Twenty days later, the S&P 500 Index (SPY) was up by a very strong average of 2.27% (42 up, 7 down), much stronger than the remainder of the sample (.63%; 514 up, 280 down). It has not been a winning strategy of late to sell into such pessimism.

* Swelling New 20-Day Lows - We registered 1999 stocks making fresh 20-day lows across the NYSE, NASDAQ, and ASE on Thursday. Since 2004 (N = 843), when we've had more than 1500 new 20-day lows, the next 20 days in the S&P 500 Index (SPY) have averaged a gain of 1.16% (43 up, 20 down), stronger than the average gain of .69% (514 up, 266 down) for the remainder of the sample. Again, it hasn't paid traders to sell into broad declines in which a large number of stocks are making new lows.

* Market Tells Tells All - Rennie Yang finds a number of very interesting historical patterns in the recent decline; his current issue of Market Tells is a must read. One interesting perspective: When we've had 10:1 negative breadth (as we did Thursday), there has been a tendency to see higher prices over the next three weeks.

* Overnight Interest Rates Hit Another Recent High - I see that September 10-year Notes pushed past 5.20%, sending stock futures lower overnight. That interest rate-stock market link noted yesterday continues to dominate trader concern; let's see if we can get to multi-year highs in rates.

* Huge Downside Momentum - My Demand indicator closed Thursday at 20; Supply was 225. So we have stocks with significant downside momentum outnumbering those with significant upside momentum by over 10:1. The normal tendency is to see some continuation of weakness prior to any sustained rally; that certainly was the case following Feb. 27th, another huge downside momentum day. It's when we see lower lows on improving momentum numbers (as we did in early March) that we start identifying a bottoming process: one of those longer-term transitional structures.