Are the Bulls Getting Skittish?
Following the first down day in more than a week, there is a change in how the bulls are reacting.
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There is a phenomenon in the market that no matter how many algos we have, no matter how many CTAs there are, no matter how many 0DTEs there are, and no matter how many penny stocks are traded, humans, try as they might, simply cannot change.
The market has been so creepy the last week or two and as noted here last week so many stocks have gapped down on earnings (and that did not change this week, it’s happened again) that all the folks who were so bulled up last Friday are now suddenly noting the gaps down, the poor reaction to earnings and naturally they are talking seasonality.
I must have heard about the poor seasonality for the market a dozen times on Tuesday. Where were these seasonality folks last week? Human nature is such that as long as we were grinding upward, they could ignore the poor action, but as soon as we got one down day, they feel the need to rethink it. I think it’s because they know their stocks haven’t been acting great.
There are the tried-and-true bulls who scoff at seasonality and shrug at the possibility of a five percent pullback. Who cares if we fall five percent, they say. One lady who was bearish at the lows and stayed that way for weeks, said she sees a Wall of Worry now!
That’s all anecdotal. Statistically, Schwab, who admittedly does not have the same customer base as Robinhood, noted that they have been doing a survey of their customers since 2022, and the bullish sentiment is now 57% which is the highest since inception. That is in line with a sentiment indicator like the Citi Panic/Euphoria Model, which is solidly in Euphoria now.
Statistically, NYSE breadth was flat as a pancake despite the S&P giving us the first down day in more than a week. But it is Nasdaq, once again, that has captured my attention. Net volume, which we discussed quite extensively yesterday, was negative once again. Get this: this was the first consecutive negative days for Nasdaq volume (meaning more down volume than up volume) since May 5th and 6th. That is nearly three months!
I consider that a change. Here’s something else I would note: the number of stocks making new highs has been lethargic. Now the number of stocks making new lows has increased. We have not seen more new lows than highs (that would take a serious sell-off), but Nasdaq had 100 new lows on Tuesday, the most in a month.
The mega caps have a tendency to rally after earnings when they have been down going into earnings. I’m just not sure if we can consider one down day ‘down’. And keep in mind that Netflix did not gap down on earnings; it just couldn’t stay up and keeps drifting lower.
The stock has support here, but notice it is right back to where it was three months ago, in early May. Maybe that’s why some of the humans are starting to fret.
