Bumping Up Against Overbought as Fed Day Looms
With Nvidia breaking out of its consolidation, stock pickers may have to reconsider their strategy.
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Now we arrive at Fed Day.
But first, let’s discuss Monday and Tuesday. If you pined away for those days where NVDA rallied at the expense of everything else, then you would have enjoyed the market these last two days. You see that Either/Or thing has returned.
For the last few months, I have called the market a group rotation or stock pickers market because when NVDA is dormant, there is money that is available to play elsewhere. When it comes alive as it has this week, it sucks the life out of the rest of the market. And the stock, until this week, has been dormant since August. So, if you liked all that stock picking, sorry, the market has closed that window for now.
Even the likes of the quantum stocks couldn’t muster a rally on Tuesday. IONQ (IONQ) , which we looked at last week as a stand-in for this group, enjoyed a small rally and now it headed back down. That low 50s area is going to be key. I believe spike lows tend to hold on the first trip down to test them (so in this case, 52-ish). It’s what happens after that bears watching. Does it have a crummy rally or a real, playable bounce?
As I have noted for weeks, the speculation in the market had to see the fever break, and it has. But the action has simply moved to the Mag 7, and even within the Mags, it was a bit selective on Tuesday. The best way to show you this is to point out that 62% of the volume on the NYSE was on the downside Tuesday. Nasdaq fared a mite better with volume being equal at 50% up and 50% down. Keep in mind, Nasdaq was up nearly 200 points on Tuesday.
Okay, so we’ve determined breadth has been poor. We’ve determined that the last few days were narrow. I say that’s because the market got overbought on Monday. Keep in mind my Oscillator is based on breadth, so as I noted Monday, what we’ve typically seen is breadth weakens and the mega caps take over.
The McClellan Summation Index has not turned down yet, although it won’t take much for it to do so.
The Daily Sentiment Index (DSI) is now at 84 for both the Nasdaq and the S&P. Had those two indexes managed to close near the highs of the day, rather than sell off late in the day, we’d probably have seen this over 85. Either way, long-time readers will recall once this gets over 85, we’re flashing yellow lights. Over 90 and it’s red.
It’s possible the SOX has another day or two left in it, but it is starting to bump up against a resistance line that has kept it from going parabolic since the summer. Perhaps that overbought reading will work its magic on the beloved tech stocks for a day or two.
