The Market Is Down, but Is Rotation to Blame?
The Nasdaq has fallen in 9 of the last 11 trading days. But not everything is so weak.
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Note: I am on vacation for the next week. My next column will be Wednesday, January 22nd.
This market might feel as if it has been all encompassing since Nasdaq finally turned south about two weeks ago. But it hasn’t. For example, you know that the Transports have been awful? Except that they really haven’t been. They made their low on the FOMC Day nearly a month ago. They have also been green for five of the last six trading days. And yes, that’s with oil soaring.
While Nasdaq has been red for nine of the last eleven trading days we have seen the Transports, Energy and even the Metals and Mining stocks inching upward. I have also noted that the homebuilders seem tired of going down, having gone sideways for the last month.
That’s why this decline has not been all-encompassing. There has been a lot of rotation within it.
Yet the intermediate term indicators are getting oversold. The Volume Indicator sits are 46% so that’s oversold. The chart was shown here last week. The 30 day moving average of the advance/decline line is just about oversold now too. In fact it is almost—not quite—where it was, in terms of being oversold, in the fall of 2023.
I would have liked to see the number of stocks making new lows contract but as we discussed yesterday, that didn’t seem possible and based on Monday’s action, it wasn’t as the number of stocks making new lows expanded beyond the prior peak readings (a negative). However, it did help to push the Hi-Lo Indicator further toward an oversold reading.
One other thing that changed in the market on Monday is that Nasdaq’s total volume was the lowest of the year (there was no panic selling on Monday). But it was also negative (more down volume than up volume) for the third straight day. That doesn’t say much considering Nasdaq itself has been red for nine of the last eleven trading days but it is the first time we have seen a three day losing streak for this metric since early August.
Stop and consider that for a minute. That’s something. That’s how much speculation has been building in this market. But to go along with the lighter volume we saw continued selling in those quantum computing stocks. QUBT, my favorite to pick on, has done a full round trip.
I want to share a story with you about these quantum stocks. Last Wednesday night I attended a college basketball game. These men behind me—about 50-ish, so they were not students!—started chatting about the quantum stocks. Here’s what I overhead—yes I am paraphrasing:
Man One: You know Jensen Huang? He’s the CEO of NVDA. He came out and said quantum computing is 30 years in the future.
Man Two: Does he know what he is talking about?
Man One: I hope not because I own a lot of them.
To me, what we are likely witnessing is an entire group of traders just like this fellow who jumped on board because the stocks were going up and will (are?) bail(ing) out because they are going down. That is how we get the speculative juices to recede from the market.
In any event I still don’t think sentiment is panicky. I think it is more akin to a lot of the bullish enthusiasm we saw six weeks ago has eased quite a bit and some are getting concerned. My view on the market hasn’t changed. It would be great to see some downside at the end of the week, especially if it were accompanied by a rise in bearishness because I still think we are heading toward an oversold bounce.
