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Stock Market Internals Do Not Signal A Bottom Yet

ByMichael Kramer
Published 03/18/2022, 07:20 AM
Updated 09/20/2023, 06:34 AM

This article was written exclusively for Investing.com

The recent three-day rally has many investors feeling the worst is over, and markets have much higher to climb. However, the market's internals look very weak on the NASDAQ and NYSE New York Stock Exchange, with the number of stocks making new lows, outpacing those making new highs regularly.

Liquidity in the market is terrible; as measured by the CME, the liquidity in the S&P 500 futures has been at its thinnest levels since the pandemic began. Meanwhile, the spread between the bid and the ask are near their widest points.

E-Mini S&P Futures Liquidity Chart

The top of the book on the S&P 500 futures has recently narrowed to its worst levels since the start of the pandemic. Fewer shares are available to buy or sell on the bid and the ask. It makes for a much jumpier marketplace and allows the S&P 500 futures to have big moves on seemingly no volume.

Additionally, the bid and ask spread has widened to some of its highest levels since the pandemic. Like the decrease in the depth of the book, the wider the bid and ask spread means the cost for trading rises, with traders buying and selling fewer shares at a given price but at wider spreads, creating volatility as prices need to move more for orders to fill.

On top of this, the number of stocks making new lows versus new highs in the NASDAQ is staggering. The number of stocks making new lows has easily outnumbered those stocks making new highs on the NASDAQ and have been overwhelmingly negative numbers. The cumulative chart of stocks on the NASDAQ making new highs vs. new lows has been making lower lows daily.

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Additionally, similar trends are taking place on the New York Stock Exchange, with the number of stocks making new lows outpacing the ones making new highs.

NASDAQ New-Highs-New Lows Index 10 Years Chart

The stocks and ETFs that seem to be having the most significant gains are those that have been the most beaten down, such as the ARK Innovation ETF (NYSE:ARKK). It is an ETF that has been trending lower for some time and is returning to the upper end of its trading channel.

ARKK Daily Chart

Stocks like Block (NYSE:SQ), PayPal (NASDAQ:PYPL), and Zoom (NASDAQ:ZM) have risen sharply in recent days, and these are among some of the many stocks that have continually made lower lows in recent weeks. While they have recently bounced from those low levels in recent days, the sustainability of their ascend remains unclear.

Together, these trends in stocks and liquidity display a fragile and unstable market, making every rally doubtful until liquidity and market internals can begin to improve.

Latest comments

let's go to all time highs rhis week!!!!
The newest information sticking out to me--and Wall Street to the thrust of it no doubt--is Kashkari FED dove saying he thinks FED needs to "double the pace of balancing the books." And, yes, Kashkari is dovish, his reasoning is related to inflation, so either think he said it to satisfy what what WS wanted to hear or he's scared of where inflation is quickly headed. Hint, choose the latter ;)
Dow Jones Industrial Average futures will indicate that the Tomahawk Butterfly pattern is headed for a breakout.
The market chart pattern has been a bullish pattern since 2020, in 2021 the flag pattern created the Tomahawk Butterfly pattern, and last week the flying pattern has moved into a reversal pattern to the upside which indicates that the Tomahawk patern has finished bottoming and is heading to the breakout point witch above the square Tomahawk [52-week high]
uhh, no. Inflation gon bring on a new normal quite quick, so is the degrowth cycle tech will experience from sack of new technology spearheading growth in 2022
*from lack
Time in the market makes more money than timing the market. He mY well be right or he may be wrong i have no idea but i am almost positive barring a black swan event the trend is higher in 5 years
Thanks for the article
from death triangle to global market rally. i think not
well that's the first signal...
Just missed.
so what happened? lol manage your risk, do not listen to guys like this blindly.
He's been hitting it all year long if you actually paid attention. There were simply so many puts for March Opex, that MMs had to push it higher. P/C OI for 3/18 got up to 2.65 with a max pain of 352. Predictably, bears were relieved at the 25bps hike and closed their puts. Many rolled their options over to 3/31. So we're looking at max pain dropping to 335 ish again next week, then max pain 350 for 3/31. Should be pretty choppy the next week or two. Pride comes before the fall. 1500pts on Nas in 3 days despite oil rising over 10% should be a clue things aren't what they seem. Bulls are drunk on euphoria for the first time in a long time, and it shows in the comments and chats. They're selling enough calls to sell a big block into again. There were too many bears before to let it drop more. The move was too obvious after 20% down. There's nothing bullish going on.
does the truth hurt? this author has a pretty solid track record. I read his work on this site as well as SA
100%, stock market going up, yet, oil is 10% higher, CPI keeps climbing as production and raw materials keep getting bought, copper, lumber, silver. Supply chain issues in semiconductor industry. Xi just said US and China relations will suffer if Taiwan is not let go of as a issue important to US. Xi said he considers Taiwan "a break-off province" of China. 104.99 oil, yields keep rising, yet, Nasdaq nearly 1500 pts in 3 days. Serious headwinds, OH, & PPI set things off, it was 0.8% instead of of 0.9%, THAT was the catalyst that started Wall Street rally. Insane. Like I've been saying for awhile, we'll see 10,700 before 14,700. 380 S&P is issuance of bear market
hi
Problem with technicals and internals is everyone has their own interpretation. A pessimist sees down an optimist see's up. At the end of the day there is only 2 directions the market can go then half the people think they called it right when really these "internals" had nothing to do with it
T
I'm staying in my SPY puts
Yep. I bout 3 months out QQQ with nice strike. High quality. Tons of time for me
good to see a realistic analysis of the markets recently rather than the ridiculous buy the dip euphoric mentality that I've seen so much of over the past few weeks - today is a watershed moment - the market is about to make another big correction down on Monday and into next week
Of course, being wrong won't stop you from making the same bad prediction next week based on Nothing of substance besides not wanting to see anyone profit.
FYI he was calling for a correction for the entire 18 month rally and was only finally "correct" recently. You can see all the articles for yourself on SA if you like.
Wrong, he started flaggin it going into Sept quad witch, like many of us saw the weakness. Bears made plenty of money since last Summer.
Usa cannot be isolated from the world, less liquidity in mkt means fewer buyers
Nowadays ETFs/Inverse ETFs allow investors to make money on both side of market without worrying about market direction.
Do any index make weekly higher high ? if not trend is down to Feb 2020 35% correction on over extended market.
Sorry, but you are completely wrong with your guess.
Do you have any information to support your 'assessment'?
When articles come out saying, be bearish, that's the time to be bullish. Now if it was a bullish article, I would be bearish and short stocks.
there are loads of bullish articles - way too many
You're dunce cap material
There are multiple bullish and bearish articles on this site. Each with valid reasoning. Problem is market is not rational so nust gotta be nimble.
Good article. I disagree though. This past Wednesday, the market really made a comeback. Stocks became bullish with the follow through run-higher on Thursday. Friday is more of a breather, break-taking day after the last 2 days. All things bearish are sells and everyone on the short side has today to sort things out, by taking losses and closing out those positions.
Only falls Breck out continues abc patients or head and shoulders continue to the down side. By the Deb in oils and comandit.
Good article.
once again, we reach the bottom already, weak up and smell the coffee, Dow Jones Industrial Average chart showing a Tomahawk butterfly pattern .
Good bear let’s short the market together
Michael sounds like he is on to something. I have mostly ETF’s that got beat up bad. In the last three days some of them went up very nicely. I thank where still on soft footing. So, I am not going to get too excited.
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