The ratio of complete Nasdaq quantity to complete NYSE quantity can be utilized as an honest sentiment indicator for the inventory market.  It’s not with out its issues, although, so one can study to take care of its vagaries.

This week’s chart exhibits that ratio, smoothed with a 10-day easy transferring common to see previous the noise within the knowledge.  It correlates fairly properly with the actions of the Nasdaq Composite Index.  When it will get as much as a excessive stage, it helps to mark a prime, particularly in the meanwhile when it turns down from that top stage.  And low ranges assist to mark good worth bottoms.  The present stage remains to be up fairly excessive, and so the fast conclusion is that falling costs haven’t but completed sufficient work on sentiment but to indicate us a pleasant bottoming situation for inventory costs.

Nasdaq shares are typically extra speculative, partially due to the better itemizing requirements there, and partially due to custom regarding the forms of corporations that select to checklist there versus the NYSE.  So when merchants are feeling extra frisky, they prefer to commerce Nasdaq shares extra, driving up the overall quantity on that trade.  And when costs have fallen, and folks retreat again into dealer hibernation, the Nasdaq market’s complete quantity falls compared to the NYSE.  That is all a pleasant neat story, and viewing these readings within the context of the latest vary of values works for the previous two and a half years.

It turns into an issue, although, after we look again farther in time.  There was an enormous change that started after the Covid Crash in March 2020, when free cash and folks buying and selling whereas working from residence boosted the quantity in low priced shares.  Share quantity is just not all the identical, and the identical amount of cash invested in low priced shares leads to extra numerical shares traded.  That helped to spice up this Nasdaq/NYSE Quantity Ratio as much as a seemingly everlasting new excessive vary of values.

Therein lies the issue.  If you’re going to use this or any indicator to gauge when a “excessive” or “low” studying presents us a sentiment indication, then you should have a method of figuring out what “excessive” and “low” readings imply.  That’s problematic when knowledge undergo an enormous regime change, and ranges that was once good markers of an overbought situation get ignored.  That may be a massive drawback.  And I have no idea of a great way to know that such a regime change in “regular” ranges is going down as it’s occurring.  After the actual fact is a a lot better solution to make such determinations, however we don’t get to commerce that method.

With these caveats out of the way in which, I nonetheless assume it’s truthful for the second to notice that this Nasdaq/NYSE Quantity Ratio remains to be up fairly excessive, which means that this isn’t a type of juicy bottoming alternatives.  Not but.  A bit extra work must be completed by the market to persuade everybody that every one hope is misplaced, that buying and selling penny shares is a silly concept (it at all times is, however individuals nonetheless imagine), and when that has occurred then we will have the chance for a significant up transfer.