But instead of digressing about generalities that can be found anywhere else, let's focus on the data!
First, we can see that there is a big divergence between the 20DMF and the Cumulative Tick.
This is strange: large investors are buying, but there is a systematic wave of selling in the background. The Cumulative Tick measures the number of stocks that see their price tick higher or lower. The two biggest movers of the Cumulative Tick are ETFs and small caps trading.
ETFs indeed need to constantly adjust their positions in the underlying stocks as market price evolve. In the past, ETFs adjusted their position at the end of the day, but this is not the case anymore, because many algos are tracking in real-time ETFs prices against the underlying value and adapt their own position in individual stocks to mimic what ETFs are or should be doing.
Small Caps have also a strong influence on the Cumulative Tick, because they greatly outnumber large caps although they trade comparatively lightlier.
Hence, I tend to simplify my market view stating that the Cumulative Tick represents a mix of ETFs and small caps investors while the 20DMF represents large investors.
We can see below that the Small caps money flow has turned positive in the most recents days. This might indicate that the weak cumulative Tick is due to ETFs sellers. By the way, IWM could easily move back up to its $148 resistance level and then cruise to its $150 level as the coming week is a bullish options expiration week.
The NQ8 displays a weakening Money Flow, but nothing that is alarming here as the indicator naturally oscillates back to the neutral position.
We can see below that the QQQ/SPY TEV pattern still point to accumulation (while the IWM pattern is more negative.) The question is therefore: where is the Cumulative Tick weakness coming from? I do not know!
What is somewhat stranger is that on Friday, the NQ8 Money Flow was much weaker than the NQ100 Money Flow. We will need to keep an eye this week on the NQ8/NQ100 pattern divergence (Is it an early sign that the leading sector is losing strength?)
Another point to keep an eye on is the reluctance of Treasuries investors to sell (LEV looks more bullish than the price drop,) while Yen buyers seem to still be active. These two patterns are bearish for equities.
I would like to also point to oil. Oil is still bullish here as the Saudi Arabia/Iranian conflict could escalate. However I would not be surprised to see a reversal if the geopolitical situation does not occupy the front page news anymore.
Conclusions:
The tax and the geopolitical issues could be the culprit below the Cumulative Tick's weakness as well as the Treasuries and Yen buying by large investors.
What will probably however matter is that options expiration week could easily trigger a new rally, especially on some of the battered down small caps.
I would therefore look at buying opportunities for a quick trade on battered down stocks and then on shorting opportunity later in the week (Friday.)
LONG IDEAS for a short squeeze
SHORT IDEAS for weak bounces
