With This Kind of Group Rotation, the Indicators Just Don't Move
Let's look at the indicators to see what they're saying about this lack of movement.
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Someone remarked to me on Wednesday that he is long the market, but his portfolio acts as though he is short a strong market. That is the market in a nutshell.
I have called it group rotation. Or at times, the Either/Or Market. Or a stock picker’s market. Call it what you want, but unless you are just long the major indexes or some small-cap tech stocks, mostly the market has been sloshing around for weeks now.
I mean, the breadth of the market looked fabulous in the morning as NVIDIA and the rest of the Mag 7 retreated. But then the big guys mounted a comeback and breadth closed the day flat as a pancake. Literally, it saw the same number of stocks up as down.
I think that is why the McClellan Summation Index has flatlined. We get one good day of movement from the others, enough to get folks excited, and then it’s over. And we start again.
Just look at the Transports. They have not been able to lift themselves off the mat since July. It’s not for lack of trying, but it seems they just sit there.
Then you get a stock like Bullish (BLSH), which I know I poked fun at when it came public in August. But look at the chart: it has more than halved. Yet the last few weeks, it’s trying to hold. So now maybe this gets a chance to rally and folks rotate into this for a few days before they move back to something else.
So, in the end, the action from the Fed meeting didn’t change a thing. We’re still just a little bit overbought short term. But the volume on the QQQs soared (usually short-term bullish) and the put/call ratio zipped up to 1.07, the first reading over 1.0 since July 31st.
Before you get excited over that put/call ratio, know that on August 1st the S&P dropped one hundred points before righting itself later that week.
Finally, an update on sentiment. The Investors’ Intelligence bulls lifted two points to 56.6%. It is the first reading over 55% since January. Over 55% is getting a little bit extreme (over 60% is extreme). The Bears are quite low at 17%. That means the ratio of bulls to bears is now at 3.3, which leans high, although more recently we’ve seen it get to the upper 3s or over 4.0.
The one sentiment indicator that didn’t change is the Daily Sentiment Index (DSI). I figured for sure it would back off with Nasdaq down on the day, but Nasdaq’s DSI stayed put at 84. So, if we do rally on Thursday, it’s possible this gets over 85, which I consider too much. Over 90 would be way too much.
