The Either/Or Market Remains Intact While the 493 Are Overbought
Software and financials continue their downward march, but what we really need is a market correction.
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So we got a fresh break in the IGV chart. And it closed on the lows. And it now matched the low from April last year. And it almost equaled the volume from the first panic level we saw two weeks ago.
Please recall that when I matched this up to the Sentiment Cycle chart, what we see is that initial panic (what I thought we saw two weeks ago), a rebound, and then another trip down. That next trip down ought to lead to another rebound, which ought to lead to another trip down, etc.
I am not quite sure if we are exactly at ‘Discouragement,’ but we are certainly heading there. What I want to point out is that we are all terrible at having patience and waiting for a pattern to play out—to see if the pattern can play out—but that’s the stage I think we are at when it comes to software. This is the part of the cycle where we start to see some differentiation. Some stocks will hold, others will make lower lows, some will simply see the selling dry up but languish.
Much to my annoyance, we saw 6800 hold once again. It refuses to break. But we have this new group to focus on: financials. As I have noted, everyone came into the year gung-ho on financials, and they have been a big disappointment. Today, the XLF broke that support at 51 by a smidge.
There are two things to notice on the chart: there is a tiny little gap to fill, not much lower than where XLF closed, and there is support from that trading in May and June. And the volume in XLF was pretty high. I don’t know if it happens now or if it rallies first, but I suspect there is going to be more downside in the financials. They are too over-owned, and there is not enough scary chatter about them yet. So far, the only focus is on the asset managers.
I still think the 493 are overbought. Just look at the chart of the Overbought/Oversold Oscillator; it still resides over the zero line. And perhaps folks are concerned about software, but they don’t seem terribly concerned about the Transports, Staples, Energy, Materials, and the like. They are in need of a correction.
Notice how the Overbought/Oversold Oscillator for Nasdaq is already back under the zero line. It’s not a great oversold reading, but the numbers say it ought to be enough to bounce come midweek.
And while the Nasdaq did not make a lower low today (like the S&P not breaking 6800!), the number of stocks making new lows remains well below that peak reading from a few weeks ago.
I maintain that if we can break 6800 (or Nasdaq’s 22550 area), I think we’d get panic, and it is likely there would be fewer stocks making new lows on Nasdaq on such a move (not on the NYSE-that’s the 493). The Either/Or market remains intact.
