Fewer New Lows, Despite the Market Drop
There are fewer stocks setting new lows, but something in the market has changed in 2025 and investors are reacting.
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The short-term oversold rally I expected to arrive midweek last week arrived and left so quickly that I’m not even sure the expression ‘blink of an eye’ is fast enough to describe the one-day rally.
We are still short-term oversold, although the same way the market jumped that gun when we had an opening for a good oversold (short and intermediate-term) rally in mid-January and then petered out so quickly was a change in the nature of the market, I would liken this to. You see, it has been a rare occurrence that we get a short-term oversold condition, and the market squanders it as it did last week, with up/down/up/down.
But you can see that when I plug in lower closes for Nasdaq, the Nasdaq Momentum Indicator still goes up, or at least chops sideways, a sign of oversoldness.
My own Oscillator is still in oversold territory, although the math was better last week than it is this week.
The number of stocks making new lows continues to clock in fewer than the peak reading two weeks ago. Nasdaq is running about half the new lows, even on a day like Monday, than it did two weeks ago when the index was nearly one thousand points higher.
It is my belief that the selling has been centered primarily in the index movers; all those stocks that lifted the indexes on a regular basis are what helped the index lead us down. There are an awful lot of stocks that are not participating on the downside to the extent the index movers are.
The best example, aside from new lows, is breadth. It hasn’t taken out the mid-January lows yet, while the S&P has done so rather handily. That’s the group rotation. So, the market feels more like a giant rebalancing where folks sell growth and buy value.
That’s why I believe we aren’t getting any panic. It’s why the VIX isn’t jumpy. It’s why the put/call ratio refuses to jump up over 1.0. It’s also why we can’t seem to get volume at or over 90% on the downside. Those would all be signs of panic. And we have seen none of that.
But we did see volume for the QQQs at 75 million shares which is the highest since early August. And there was that high volume day (at just over 60 million shares) last week. I might not call it outright panic, but I would call it a major pick-up in selling.
Let me finish with the Daily Sentiment Index (DSI) readings because they are not extreme. I know some of you will shake your heads thinking this can’t be, but the DSI for the S&P is at 38 while Nasdaq’s is at 32. Both are well within the neutral range. If they fall into the 20s it would be time to focus on them. The DSI for the VIX is at 78 (we had a reading of 79 last week), so that is knocking on the door of extreme.
As a reminder, under 15 means time to be on your toes; a yellow light is flashing. Single digits (bonds were single digits in January) mean time to do some buying.
I still think we should have an oversold bounce, but the nature of the market has changed in 2025, and I sense folks are coming around to realizing that.
