Exploring Answers to Two of Your Most-Asked Questions
Lately, two main themes have emerged to the questions I'm asked by readers. Let's dig in and answer them.
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Sometimes my inbox is dominated by one theme or another, meaning I get a version of the same question over and over again. In the last week, there seem to be two themes to the questions.
The first is: why can’t that Panic low have been ‘it’, and from now on, we go up? Let’s explore that for a minute. We’re not yet overbought on a short-term basis (that comes later this week). We’re certainly not overbought on an intermediate-term basis, just look at the Hi-Lo Indicator, which hasn’t budged despite the market lifting off the lows nearly two weeks ago.
The McClellan Summation Index has turned upward.
Even Nasdaq’s TRIN has been high. It’s been high enough that the ten-day moving average is now at 1.01. You can see it doesn’t often stretch up over 1.0 (over 1.0 means Nasdaq is short-term oversold).
On the sentiment front, the folks over at NAAIM finally started ditching their stocks, so their exposure is now down to 35. Last week, I noted the Citi Panic/Euphoria Model finally fell out of Euphoria and is heading toward Panic, although it is still quite a way from Panic.
I might even note that Breadth has been outperforming the S&P in recent weeks. In the top panel, it has made a higher high (than that turnaround on Wednesday, April 9th) while the S&P still sits a couple of hundred points below it.
Those are the reasons to be bullish or at least think we’re headed for another rally, something I have been advocating for a week or more now.
The next question I get is a version of ‘are you sure we’re not just going to head straight back down now?’. I am never sure. Anyone who has been in markets for any length of time can tell you they always keep options open. But based on the indicators above, it seems a bit too soon to head back down.
So why do we have to come back down? We don’t. But let’s take a look at the chart of the QQQs on a weekly basis. We can see the breakdown under 320 back in 2022 (blue line). But step back and count how many months the QQQs spent under that blue line. My count is 4-5. That’s what it means to need more ‘work’. For the current situation, the green line is a resistance area (480-ish). The black line is support (400-ish). Thus, more ‘work’ is needed in my view.
Eating through resistance is a process. Building a base is a process. As traders, we tend to be like teenagers, craving instant gratification, but the market is more like an adult, taking things slowly and more carefully.
I do not think volatility is going away. I also think 2025 is a trading market. That hasn’t changed.
Finally, let me note that my premise has been that the Oscillator ought to get at least to, if not over, the zero line. Friday helped push it closer. That remains my expectation.
