The Market Bounced Right at the Obvious Trendline
But was there enough panic in the market for this to be a bottom?
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Before we get to the action from Monday, I want to give a shout-out to all those people on television who keep trying to compare this move in the market on ‘tariffs’ to 2018. How can you compare a market that has fallen 20% (2018) with one that has fallen 10%? (now) I just don’t see the comparison.
I’ll cut to the chase. I do not think we saw panic on Monday morning. I know folks were bearish Monday morning, no doubt about it. Had they opened the market with 90% of the volume on the downside, I would say, okay, they acted on said bearishness. But instead, we barely got over 80% before the buying started.
Now let me point out that Nasdaq did not see a positive divergence in that the number of stocks making new lows crept up over 700 vs mid-March’s reading of 688. The good news is that the NYSE did see a positive divergence with 276 new lows vs. 289 in mid-March, so it was a squeaker.
Remember back in mid-March when we finally saw the volume in the QQQs surge to 75 million shares? I fussed at the time. Monday saw the QQQs trade just over 50 million shares. There will be those who say we are supposed to have less selling on the second leg down (they are correct), but I say that’s if we got panic on the first leg down (we did not).
In any event, Nasdaq (and the S&P) bounced right off the obvious uptrend line.
Now that I am done complaining about the lack of panic, I do want to discuss sentiment. The ISE call/put ratio was .99 on Monday. To me, this is a big deal. I realize there is not much difference between .99 and 1.0, but we have not seen a reading under 1.0 since the August low. That’s a long time. And that’s a change.
In this entire ride down over the last six weeks, we have seen a propensity to buy calls in this indicator. Monday, that was not the case, and I take that as a change. Sure, we might see the call buyers jump right back in on Tuesday, but I take heart from this low reading.
We haven’t looked at the ISE Equity Call/put ratio much (I tend to use the total), and its reading was not particularly low on Monday. However, over the last six weeks, it has been trending lower, and that means the ten-day moving average is now closing in on 1.6. In the last year, this level has led to rallies (prior to last year, a reading closer to 1.20 gave us a rally).
But my point in fussing over this is that up until now, we have only seen the surveys show bearishness. This is the first options ratio to show a change.
I will continue to hope we get some panic this week because I think panic would lead to a better rally. In the meantime, I will end by reporting that the Daily Sentiment Index (DSI) for Gold is now at 88. Over 90, and I’d exit gold. Either way, if gold backs off, it probably means stocks can rally a bit.
