Home Market Analysis Stock Market Internals Do Not Signal A Bottom Yet

Stock Market Internals Do Not Signal A Bottom Yet

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This article was written exclusively for Investing.com

The recent three-day rally has left many investors feeling that the worst is over and the market has plenty of room to go up. However, the NYSE and NYSE inside the market looked very weak, with the number of stocks hitting new lows outnumbering the number of stocks that regularly made new highs.

Liquidity in the market is terrible; it has been at its lowest level since the start of the pandemic, as measured by CME Group. At the same time, the spread between the bid and ask prices is close to the maximum point.

E-mini S&P Futures Liquidity Chart

The top of S&P 500 futures recently narrowed to its lowest level since the start of the pandemic. Fewer shares can be bought and sold at the bid and ask prices. It made the market jump even more and allowed S&P 500 futures to move wildly with seemingly no volume.

Additionally, bid-ask spreads have widened to some of the highest levels since the pandemic. Just like a reduction in book depth, a larger bid-ask spread means higher transaction costs, and traders buy and sell fewer shares at a given price, but the spread is wider, resulting in more price volatility as orders need to be filled more.

On top of that, the number of stocks making new lows and new highs on the Nasdaq is staggering. The number of stocks making new lows easily exceeds the number of stocks making new highs on the Nasdaq, and the vast majority are negative. The cumulative chart of Nasdaq stocks making new highs and new lows is making lower lows every day.

Also, a similar trend was seen on the New York Stock Exchange, with stocks making new lows outnumbering stocks making new highs.

Nasdaq New Highs New Lows 10 Year Chart

Nasdaq New Highs New Lows 10 Year Chart

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

ARKK daily chart

Stocks such as Block (NYSE: ), PayPal (NASDAQ: ) and Zoom (NASDAQ: ), which have risen sharply in recent days, are some of the many stocks that have fallen in recent weeks. Although they have rebounded from their lows in recent days, the sustainability of their gains remains unclear.

Together, these trends in equities and liquidity point to a fragile and volatile market, with each rally questionable until liquidity and market interiors begin to improve.

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