Persistently Weak Internals

Hey Market Pilot,

We continue to see the markets work themselves lower on the back of significant news and economic developments. Omicron (a Covid-19 variant) seems to be getting politicians panicked again and talk of lockdowns is increasing. The “Build Back Better” plan is on hold. Tapering has doubled. And there will most likely be three interest rate increases next year.

Despite the crazy pop last week from the Federal Open Market Committee (FOMC) minutes, the market has not been doing well and the internals have been communicating that for several weeks. Below is a screenshot of the Advance / Decline Volume (top) and the number of up stocks vs down stocks (bottom).

For the top section, we can see that the majority of days have had significant selling volume versus the few positive days. This is a fairly clear view that sellers have been overwhelming buyers by a wide margin.

The bottom chart shows how many stocks are up versus down in a day, and while it may look healthier than the Volume chart, I put arrows on the days that looked positive, but after the initial pop, the day went heavily negative. This is most likely due from overnight activity where stocks were pushed up in the after-hours trading, only to get sold into at the market open.

Everyone keeps looking for Santa to show up, but unless the Fed does something like they did at the end of 2018, the rally may not show up. And at this point, if there is a rally, beware it may just be a bounce in a downtrend.

Your Profit Pilot, TG


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