If the Pattern Holds, Wednesday Could Be Up. But Will It?
Recently, when the market has been down two days in a row, the third day was up. Are we set up for that to happen on Wednesday?
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It may look as if Tuesday was more of the same in the market, but it wasn’t. Because all the stuff that had been holding up gave it back. Let’s call it a minor change. Sure, we can’t get that big whoosh with lots of downside volume, but that’s because it’s still an Either/Or Market.
What else changed? The Nasdaq Hi-Lo Indicator went to .16, which is oversold. The NYSE’s Hi-Lo Indicator is still at .25 so that needs a bit more to get to an oversold condition.
On the sentiment front, we are finally seeing some movement in the 21-day moving average of the ISE call/put ratio. I wouldn’t call it bullish—it’s got a long way to go for that-- but it certainly has finally come off the boil.
Sticking with sentiment, the Daily Sentiment Index (DSI) for Nasdaq is now at 28, and the S&P is at 31. Again, neither is extreme but they are edging closer to where they get interesting.
There’s another pattern I have noticed. When we moved from chop to selling in late February, we had a long string of red days on the S&P. But since February 25th we have not had more than two consecutive down days. I know it feels as if we are down every day, but that is not the case. Each time we get two red days back-to-back, we rally. Thus far, Monday and Tuesday have been red this week. Let’s see if the pattern holds, with Wednesday being an up day.
I have spent much time in February discussing Nasdaq’s volume but have said very little about the volume on the NYSE because it has mostly been in the 4-5 billion share range. But in the month of March that changed. We have not had a day with NYSE volume under five billion shares.
So, when we look at the 20-day moving average of NYSE volume, we see it has surged. And surging volume, whether we get that big downside whoosh I so desire or not, means there has been quite a lot of selling.
The 20-dma of NYSE Volume is now a smidge higher than the Silicon Valley Bank fiasco (blue arrows). But let’s focus on early 2022 because this looks more like that than the SIVB disaster.
Look at the surge in early 2022 (red arrow). We then rallied and came back down, but volume was lower (as there is less to sell). Notice by the time we got to the low in October 2022 volume was making a lower high again. Recall all the calls for a higher VIX at the time? Instead, we whimpered because we weren’t just oversold; we were sold out.
So ultimately this is bullish as this tells us there has been quite a bit of selling, just that it has happened over days and not in a whoosh. Now if we can only get the oversold rally to start the process.
