Can the 493 Lead the Market Higher?
It's the time of the year when people chase into year-end. Those bounce candidates could be what they focus on.
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Note: I am taking the remainder of the week off. My next column will be one week from today. Happy Thanksgiving to my fellow Americans!
If you’re like me, then you probably can’t remember the last time we had a reversal in the market to the upside that wasn’t led by the mega-cap tech stocks. Or the last time we rallied like that, and NVIDIA and Microsoft, which together account for fifteen percent of the S&P, were both red.
Naturally, that begs the question: has something changed in the market? Do folks no longer want the Magnificent Mega Caps (which you might recall we looked at last week and realized maybe they are not all so magnificent), and now they want the 493?
It’s a dilemma because it is that time of the year where, typically, folks chase into year-end, but they also start eyeing what could be bottoming for the coming year. We’ve already determined that drugs are a bottoming group, although they are a bit overdone in the short term. Staples are trying.
The chart of the (XLB) ETF, to be long materials, caught my eye last week. The chart is not pretty. It is barely up on the year. It is down from—wait for it—last summer! But it did not make a lower low (vs early November) last week. I tend to notice that type of action in something that has been so unloved. Basically, I start wondering if everyone has finally given up on it. It’s too soon to say, but it’s on my radar.
But I do know that everyone is still focused on tech stocks. So let’s take a look at the (QQQ) because their volume on Thursday and Friday exceeded 100 million shares both days. That is unusual, and often I think of it as capitulatory.
I looked back to see that in March (box on the chart), we saw volume jump to 75 million shares, and that gave us a bounce. Just prior to that decline that began in February, average daily volume for the QQQs was tracking around 25 million shares a day, so 75 million was three times average volume, enough to cause a two-week bounce.
When we collapsed in early April, we had several days of volume over 100 million shares, and I lauded it. But that was five times normal volume, thus feeling quite capitulatory.
The QQQs have been averaging about 50 million shares a day in recent months, so 100 million shares is only two times normal volume. Is that enough to give us a bounce? Oh yes. Is it capitulatory? I don’t think so.
The number of stocks making new lows on Nasdaq contracted ever so slightly on Friday after Nasdaq made a lower low. That’s a minor positive divergence.
Last week, we discussed the market getting oversold this coming week, so if we give up Friday’s rally early this week, I would consider it just a move into oversold territory.
Last week, we looked at the ten-day moving average of the total put/call ratio, and we saw it had gotten to .93, the highest since its surge in April. Now we can look at the equity put/call ratio's ten-day moving average, which has not gotten as high as it was in August but does seem to be rolling over.
I will end with what is hopefully the last time I comment on Bitcoin(!!). It, too, didn’t go green on Friday, but it did enjoy a spike low, and the Daily Sentiment Index (DSI) is at 13. I’d still lean toward buying, especially on weakness.
