Buckle Up, We’re in for a Volatile Market the Next Few Weeks
Let's check under the hood to see what's changed since we last looked, and where one indicator is on its 'long hike.' Plus, penny stocks return and the one sentiment reading I'm watching closely.
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I’d love to tell you that the Thursday morning excitement in the market changed the indicators, but it did not. I’d love to tell you that it changed the charts. It did not. The only thing it changed was that the penny-stock folks took the last week off but they returned with a vengeance.
Oh maybe the market was a little different because staples (!!) and drugs found some friends and the even the bonds weren’t sold. But despite the great earnings for Nvidia NVDA the SOX is still not outperforming the Nasdaq.
Despite the fact that breadth was pretty solid all day on Thursday the indicators didn’t budge. You can see the Oscillator lifted itself from under the zero line to get to the zero line, but it couldn’t manage to get over the zero line.
Over the next few weeks I anticipate there will be times that I note a certain group (like the SOX I highlighted few days ago) or the overall market is short-term oversold. Understand, though, that is within the context of the intermediate-term being overbought. For that reason I think short-term rallies will be short-lived.
For example, I can anticipate that if the overall market falls in the next few days this Overbought/Oversold Oscillator will be pushing near the lows and therefore we’d be short-term oversold by midweek next week.
This is another reason I think we’re in for a volatile market in the next few weeks. The breadth indicators have rolled over but they have done so with little oomph. If they had more oomph I would move from looking for volatility to outright "down" but so far it’s more like a rest stop on a long hike.
Sometimes you rest and keep going. Sometimes you rest and decide to turn back. If the breadth indicators get weaker I would move toward "turning back."
Sentiment is still hopeful but some indicators are now complacent. The 10-day moving average of the put/call ratio is complacent, having turned up last week.
The AAII (American Association of Individual Investors) folks saw some bulls jump back to the bear camp so there are once again more bears than bulls. The Investors Intelligence folks were barely changed this week. I consider both of those neutral, or what I am terming "hopeful."
The folks over at NAAIM (National Association of Active Investment Managers), though, increased their exposure up to 88, the highest since early March. I am watching this indicator closely because they were the last to capitulate at the lows (when they dropped their exposure to 35) so if they lift much more than 90 that would be a tell. And of course if they go over 100 (on margin) that would be a sign that complacency is back.
