Are You Exhausted by the S&P 500's Volatility Yet?

All that volatility, and still, we go nowhere. We don’t break down, we don’t break out. We go down and the selling dries right up. We go up and the buying dries right up. Stocks get exhausted and so do we.

There was, however, enough selling that we saw the number of stocks making new lows expand quite a bit. We’ll monitor that to see if it expands much more on an up day. But for now it is just more chop.

The main difference between last Monday’s sell-off and this Monday’s sell-off is that last week, the decline was so centered on NVDA that the breadth of the market was allowed to expand. Recall, it was green on the day. This week that was not the case. This week, breadth was mostly weak all day.

But that weak breadth has helped the Overbought/Oversold Oscillator come back to the zero line. It’s not oversold yet but this is the way it ought to pull back to get oversold again.

Of course, the Market Gods don’t want to see the short-term oversold at the same time the intermediate-term is oversold because that would make our lives easier. So keep in mind that midweek this week, the intermediate-term, 30-day moving average of the advance/decline line will stretch back to an overbought condition. That’s one way to keep this chop alive.

Then there is sentiment. I don’t think it was panicky on Monday as we never saw down volume as a percentage of total volume get to 90% but I have observed a subtle—very subtle—shift in the options ratios. The put/call ratio ended the day at .94. That is not panicky, but it is the highest reading since January 13th, which was the low in the market (for that rally).

Then there is the ISE Equity call/put ratio. Since the election, we have seen exactly seven days with readings under 2.0, and three of those days were the last three days (remember this is a call/put ratio so a low number means puts are being bought).

Think about that for a minute. The call buying has been relentless with these (mostly) retail folks. Beyond persistent. Yet in the last three trading days—since the Fed meeting their call buying has cooled off. It’s not extreme, the readings are all still over 1.85 but it’s a minor change. Maybe because the Mag 7 have begun to diverge.

Think of this divergence in the Mag 7 like you are watching a police drama. The police are following two people who are walking together. It’s steady as it goes. But then they split up and the police need to decide which one to follow. Do they split up, or do they pick one? It’s a lot easier to have them together than to choose which one to follow.

So our trading market continues. I still think these next few weeks bring us more volatility than January.