Sigh a Breadth of Relief: Key Market Indicator Continues to Improve

I always like it when market indexes fall and breadth stays green. To me that is a sign of strength underneath, not just in the index movers. On Monday the S&P 500 fell nearly 10 points and breadth on the New York Stock Exchange stayed -- barely -- positive. That's good news.

In fact, that makes it just over a week now that breadth has outperformed. During last week's downdraft breadth, while red, it was not seriously so. During the rally in the latter part of the week, breadth even saw two days when there were quadruple digit readings -- meaning net breadth was positive 1,000 or greater.

So if breadth has been so good for the last two weeks, why is the McClellan Summation Index sitting there like someone sat on it? Why can't it turn upward? Why is it the best it can do is stay flat? And that's after four straight good breadth days.

The only answer I have for you is that the Summation Index is a slow moving indicator and in really strong markets it doesn't take this long to turn. The best example I can give you is off the December low last year it turned within three or four days. Think about that: We'd been down so much in the prior weeks and still this indicator was able to reverse in a few days. Now we have been up and it still can't reverse.

My takeaway is that since this tells us what the majority of stocks are doing, then we know the majority of stocks are spending a lot of time churning or going nowhere. A decent up day on Tuesday could turn this indicator upward, but it's really taking a bit too long.

One other indicator to watch is the 10-day moving average of the number of stocks making new lows. This indicator began to turn down just over two weeks ago, something I consider a positive for the market. It did not turn back up in last week's early whack. But since this is a 10-day moving average, in two more days it starts dropping the rally days. You know, when the new lows started contracting in earnest.

Therefore, should the number of stocks making new lows tick up at all this week this moving average line will turn back up. Here is the chart of Nasdaq's new lows on a 10-day moving average. Monday saw 59 new lows. To put that in perspective, seven trading days ago we saw 31 new lows. So this number needs to contract a lot more to keep this indicator heading down.

Quite frankly, I think this pullback is healthy. The more it shakes out weak hands, the better it is. But I don't want to see the indicators roll back over. Mostly we've just had a lot of chop these last two weeks, with up,down, up, down.