I Know What We Did Last Summer
Let's look at what happened to the majority of stocks in July, why we can’t seem to get a big volume down day, and check in on sentiment and the VIX as we get ready for Nvidia.
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It is my contention that the majority of stocks peaked last summer. Oh I know there is a long list of what did not peak last summer, but when we look at the McClellan Summation Index, which I believe tells us the direction of the majority of stocks, we can see quite clearly it peaked in July.
I even heard a gentleman on television say that more than 20% of the S&P 500 is down more than 20%. I jotted it down quickly so perhaps the actual numbers are incorrect but consider that one-fifth of the S&P — I’m not even talking the entire NYSE, just the narrow S&P — are down in their own bear markets.
Even if we look at one small segment of technology we can see that (IGV) , an ETF to be long software stocks, peaked in July, corrected and made a marginal higher high before falling 15% in a straight line. It hasn’t made a lower low yet, but again, it’s not been a great area of the market since last summer.
But that’s what you get when a mere 10 stocks account for 40% of the S&P. It’s top heavy. In fact it is so top heavy that we continue to have an Either/Or Market. Breadth was terrible on Monday but the tech stocks were milling around for the most part. On Tuesday tech got hit so the others/493 could be allowed to rally.
That’s why we can’t seem to get a big volume down day, because it just sloshes back and forth, and nothing gets cleaned out. For example, Bitcoin held. But (BTC) , which typically would rally thousands of dollars once oversold, rallied not quite $1,000 on the day.
Then there is sentiment. Two weeks ago folks were yelling at me, but Fear & Greed shows "Fear." I called it an outlier since it was the only so-called sentiment indicator that said Fear. Now it shows "Extreme Fear."
The 10-day moving average of the put/call ratio has finally risen to 0.90. Two weeks ago it was at 0.85 so I wouldn’t call it fear but I would say we have definitely seen a sentiment shift here.
Three weeks ago the Investors Intelligence bull/bear ratio chimed in over 4.0 and I declared that giddy. It will be released again on Wednesday. I expect it will show us folks are no longer giddy, probably not even complacent. But will they be bearish? I doubt it. I am willing to be surprised though.
The AAII survey, which I think is only useful when there is another indicator to confirm it, showed more bears than bulls last week and we haven’t had an up day since its release. But I do expect it will show a decent level of bearishness this week.
The VIX is finally getting jumpy. I tend to like it when it makes a higher high and reverses, but at least it is now up near 25.
Well heck, if Nvidia (NVDA) disappoints in some fashion we know sentiment will shift even further.
