Complacent Bulls Persist Despite Market Slosh
After last week’s breakout, small-caps struggle as sentiment stays bullish and oversold signals remain elusive.
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One thing this week has done is quiet down all the folks on Team 493.
After making a new high last Thursday and getting everyone quite excited, the Russell 2000 has had one up day and that was Thursday. But I’ve blown up the last week on the chart because not only has the (IWM) given it all back, it has closed on the low of the day all but one day. And that includes the up day.
There used to be folks who cared about that, creating all sorts of indicators to measure buying and selling pressure with the thought that buyers into the closing bell was much better than sellers into the closing bell. I have never seen data I would call convincing, but when a chart makes a new high and it’s followed by selling into the bell every day thereafter, I tend to think overall that’s not great momentum.
Yet I am still looking for the market to get short-term oversold next week. That has not changed. The Nasdaq Momentum Indicator is still pointing in that direction. Although at this point that is the only indicator I have pointing that way.
Should the Nasdaq sell off in the next few trading days, I believe the "what if" for the McClellan Summation Index for the Nasdaq will show an oversold reading. That was explained here earlier in the week.
My own Overbought/Oversold Oscillator is not lined up to be so accommodating. When I look back 10 trading days, trying to find a long string of red numbers to drop off the 10-day moving average (thus make the market oversold), that is just not what I see. Mostly it looks like if we get a whack we’d then rally then come down, etc. Sloshing around.
I try and discern something from sentiment to see if that lines up. The 10-day moving average of the put/call ratio is currently 0.87. It was 0.93 at the Thanksgiving low. So it’s heading that way. Again, if we got the market down in the next few days maybe we’d see the put/call ratio higher enough to fuss over.
Then there is the AAII survey. These folks have barely budged in their bullishness in three weeks, despite the market going nowhere. Quite frankly, for a group who tend to jump around like day traders, it’s surprising how complacent they have become since Thanksgiving. But last week we discussed the possibility of the four-week moving average of bears to move to a lower low (since the spring) and that is exactly what happened. It is not extreme at all, but it certainly shows complacency.
The folks over at NAAIM have pushed their exposure up over 100, the same area they were at in late October. It seems everyone wants me to believe that when these folks go on margin (over 100) in December it is bullish. Color me skeptical on that. They are bullish.
So I am still looking for an oversold rally next week, but thus far the action is uninspiring.
