Panic Selling in Software Stocks. But Is There More to Come?
Let's look at a few important measures of investor activity.
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I like to draw lines on charts. And if one line doesn’t seem to work, I will find another. In that respect technical analysis might be different than fundamental analysis. Or maybe the fundy folks play with the revenue and earnings estimates until they settle on one they like so in that respect there isn’t much difference.
I can draw several different lines on the long-term chart of IGV but none of them will say, okay here’s the level. I might however note that the gap at 86 got filled and IGV closed at 85.39. What’s a few pennies among friends? I also might ask you to look at the volume on this five-year chart and tell me folks weren’t jumping ship today. That’s exactly what panic selling looks like.
I do think folks were much less sanguine about software on Tuesday than they were on Monday. There were a few more ‘narratives’ generated. My guess is because on Tuesday the SOX joined in on the downside.
I don’t think there is massive hate for software—that’s probably still to come—but we did see the ISE Equity call/put ratio slip under 2.0, something it hasn’t done since mid-December. In other words, they finally stopped buying so many calls. And we saw the CNN Fear and Greed Index go from Greed (61) Monday to Fear (41) on Tuesday, and we know that wasn’t because there was selling in the rest of the market.
I have been saying sentiment is complacent. I’ll say it is no longer complacent in tech-land although I would not call it fear. Not yet.
We saw the number of stocks making new lows surge on both the NYSE and Nasdaq. If you are bullish, you want that to contract.
We did see breadth positive on the NYSE which is how I know the move to ‘fear’ is all about technology. On Nasdaq the net volume was flat. So sure, there was selling in the software names and some semis but there must have been decent buying elsewhere. In other words, there was no wholesale panic.
Then there is the ratio of the S&P to Nasdaq. It scooted over the line on Tuesday. It’s possible it comes right back down--it's still a little hard to see from across the room--but notice that the last few times this happened the big cap indexes took a tumble in the ensuing months. Oh not in the next week or so but over time.
I don’t know if the market will accommodate me, but I would love to see Nasdaq with another down day or two before we get to Friday because that would give us a good short-term oversold condition. Here is the table of the numbers we are dropping off the ten-day moving average of breadth for Nasdaq. You can see Wednesday and Thursday are going to be difficult to ‘better’ but starting Friday, we’re looking at a decent string of red numbers, certainly enough to get software to bounce. And if tech doesn’t bounce Wednesday and/or Thursday that Fear and Greed Indicator will surely be in Extreme Fear by then!
