My only problem is that the MF was rather weak during the day until 15:30, when some good money moved in.
This tells me that most smaller caps were bought (much short-covering by retail traders) while large caps did not attract much money. Another explanation could be the need for ETFs to slowly and regularly buy a wide range of stocks as markets moved higher... But large investors were selling strength.
We can also see that the e-mini did not attract money during the bounce.
The good news is that the tech and biotech sectors and the 10 largest stocks are doing well (because of the AAPL bounce).
We can see a similar divergence in sentiment by looking at the difference in large player behavior for XLE, IBB and XLK. We can see below that until about 15:00, XLE's MF was trending down. On the other hand, we can see that during pullbacks, large players on XLK and IBB did not sell shares.
But even with the final 30 minutes buying strength, the day's MF was only 76.8% as strong as the average MF of the past 10 days. This is not the type of MF I am used to seeing when the S&P500 bounces by 2% from oversold level. (More about that in the stats section below.)
Looking at the sectors Thrust, we can see that neither energy nor finance attracted much money. This is somewhat strange, because oil bounced hard and this bounce should have pulled everything higher, especially energy companies.
The fact that financials did not follow might indicate that there is a widespread belief that the bad debt issue in the energy sector is not going to disappear just because oil experienced a two-day oversold bounce.
If we closely compare the regional banks with the larger banks, we can see that the majority of regional banks were under pressure yesterday. This shows that the energy debt issues will remain on the table for some time.
I believe that SLB is the poster child regarding what happened to the energy sector yesterday. SLB had earnings yesterday. They announced a 10B share buyback, but also a 40% sales decrease. The stock went up due to short-covering, but large investors took that opportunity to offload, because 2016 will continue to be difficult for the company.
Conclusions:
The question I asked last week was, "Will the energy bounce be strong enough to pull the whole market higher?"
The question for this week is, "What will the tech sector and the rest of the market do if and when the energy sector falls back down?"
I believe markets will be down Monday. This time, the narrative will concentrate on poor earnings, but in reality, the main culprit will be bad debts. Only QE4 will save this market.
Some statistics.
Whenever I detect something that I feel is "strange," I tend to look at data of past similar occurrences.
What I found strange is that yesterday, the 20DMF issued an Buy Oversold signal and the S&P500 bounced 2%, but Money Flow increased by only 0.1%.
The figure below shows all such points since March 2009. The red dot displays the MF/SP500 of Friday. We can clearly see that this is an "outlier." Hence, my observation was correct: for an oversold buy signal, the money flow did not support the price bounce.
Below are the returns X days after a buy Oversold signal. We can see that these signals have been very positive since March 2009 (in green). Before March 2009, these signals were only good for a one-day rally.
In the figure below, I split the dark green line of the above figure into two groups: strong price bounces with a weak Money Flow (6 cases) and the rest of the cases. We can see that weak Money Flow resulted in much weaker price gains for the next days.
I also show in a light green colored line the benchmark returns for any day since March 2009. We can see that the red line is not much far above that benchmark. Note that the benchmark includes all the stellar QE1 returns of March to June 2009.
I also noted that in the past two days, the market gained about 5% from the lows of Wednesday, while the MF only gained 0.12%. This is also an interesting data to look at.
The figure below shows all the MF/SP500 gains that correspond to the Wednesday low - Friday close of last week (independent of the oversold situation of the market.) The red dot shows the data of Friday. This also looks like an outlier... Although this time, there are other cases we can look at.
From the above cases, I extracted the 11 cases that were the closest from the red dot.
Results are shown below. Most of these cases occurred during buying exhaustion processes (still after March 2009.)
Friday was probably not a buying exhaustion process. However, the data probably shows that a weak MF is not good for the strength of a potential follow through. In fact, without predicting anything, I would not be utterly surprised if we witness a complete retrace of this 5% bounce.
