How Long Until Stocks Are Oversold?
An increase in selling volume, although not yet extreme.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
With everyone discussing sentiment and the AAII survey, I will give you my two cents even though you probably already know it. I have long said it is a worthwhile indicator and should not be ignored, but it works best when it has confirmation from elsewhere.
So, the fact that the bulls dropped ten points and now reside at 19%, and the bears jumped 20 points and now reside at 60% is a big deal. But as we discussed yesterday, the Investors Intelligence bulls are at 44%, and the bears are at 24%. One survey is +20, while the other has a spread of -40. Should we see the Investors’ Intelligence bulls fall to, say, 40% next week and the bears jump to 30%, that would be better. Both at 35% would be much better.
But the NAAIM Exposure was barely down from 90 to 86 this week. Does that sound like it confirms the AAII? And that’s fresher than the Investors Intelligence readings, as that is from Wednesday.
It’s been a while since I have discussed the ISE call/put ratio but the equity portion of that has now been under 2.0 for four straight days. It hasn’t done that since prior to the election. We typically look at the 21-day moving average, which has hardly moved. It will take several more days with low readings to get that to move, but the more sensitive five-day moving average has moved quite a bit. It is now back to where it was in October, from a high of 2.80 to 1.80. So, we’ve seen a slight sentiment shift there.
We see it in the volume on the QQQs. There is nothing extreme or anything that looks like panic in the volume, but three of four days this week—the three days the QQQs were red—saw volume over 40 million shares. That is the most since the August plunge, maybe the September pullback. Whatever it is, we’re finally seeing some selling on volume in this well-watched ETF.
We can even see the selling in the Nasdaq McClellan Summation Index, which has been trending lower for a month now. This week, there was no divergence (where it keeps going up no matter what the index does). That’s a sign that sentiment is shifting.
What will it take to halt the decline in this indicator? It now needs a net differential in volume (up minus down) of +11 billion shares. We last saw this sort of reading at that August low. So yes, there has finally been some size selling in the growth/momentum stocks.
I wish I could tell you that the intermediate-term is oversold, but I cannot do that. I can, however, tell you that we are on track for a short-term oversold condition next week. As we get closer, I will discuss it further.
In the meantime, the SOX finally broke. Microsoft has broken and IWM closed solidly under 215. Only ITB and the Transports, which have been red for seven straight days, are still hanging on by a thread.
