Folks Are Starting to Get Bearish, Just in Time for a Little Rally
The next question is, will this rally have legs?
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The Market
Note: I am going to take a few days off to visit my mother. Perhaps she will have some market pearls of wisdom for us! The next edition of Top Stocks will be Monday evening, March 10th.
At least we got the rally. And yes, I know the burning question is how long will it last? Let me say I don’t expect it will just zoom upward. I expect there will be a lot of chop as we work the oversold condition off. Mostly, that’s because the intermediate-term indicators are not fully oversold, and we still have not seen any real panic, just general gloominess.
It is too soon to tell when we’ll be back to a short-term overbought condition. It usually takes a few days for me to determine that.
But as I noted midday in the Daily Diary, there were far fewer stocks making new lows on the morning move lower. Yesterday, Nasdaq had 688 new lows, and today, there were 166. That’s quite a difference (in a positive way).
The NYSE had 289 new lows on Tuesday, and Wednesday saw 97, also quite a change. I can’t quite call it a positive divergence only because the indexes did not make lower lows. But still, it is a plus for the market.
Nasdaq’s Hi-Lo Indicator made its way to .19, so it is now at the top of oversold territory. The NYSE (not shown) is at .30, and oversold there is .15, so that’s still far away.
On the sentiment front, I think we have a lot of anecdotal evidence that folks are getting more bearish. That’s the chatter, at least. The Investors Intelligence bulls did come down to 36% which is the lowest reading since they made it to 25% in October 2022. Chalk that up to the positive side of the ledger.
The bears are at 28%, so unlike the AAII, there are still more bears than bulls, and the bears were higher in January when they were 32%. This, I can’t say, is as positive as the move in bulls since most of the folks pushed their way into neutral territory. Recall my many discussions about how folks rarely jump the fence from bull to bear (and vice versa) but typically take a stop on the fence, so this is not unusual.
But today’s put/call ratio sunk immediately to .75. That still screams complacency despite the chatter and the surveys.
My best guess is now that we got an oversold rally there will be more to come, even if not tomorrow or the next day. I also guess that folks will turn bullish quickly if we rally for a few days. Thus, we remain in a trading market. Don’t fall in love with your stocks, long or short.
New Ideas
I was asked about Apple AAPL, and I honestly do not have a strong view on it (unlike, say, AMZN, which I did think was due for a rally). It tried to break in January, it rallied and came down to a higher low, rallied again to eke out a minor higher high (than January) and came down again—to a higher low. Maybe the stock just isn’t really going anywhere. But I would say that unless/until it breaks that 220 area, it gets the benefit of the doubt.
If it starts making lower lows, I would get very concerned. It just looks like it’s not worth fussing over as it trades back and forth.
What is worth fussing over and paying attention to is Microsoft MSFT. It broke, tested the lows, and rallied. If it can’t get back over 410, I would fret.
There is no reason why Sherwin Williams SHW has held up so well, but it has. If it can get over that line, that would be a big plus.
Today’s Indicator
The Volume Indicator is at 48% which is getting closer to an oversold condition (under 47% in a bull market and the lower 40s in a bear market).
Q&A/Reader’s Feedback
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On the daily chart of FedEx FDX, you can see how important holding 245 is. I am not sure I trust it to hold. The first sign that it will not hold is if it turns south without getting over 265 on this oversold rally.
Notice on the weekly chart (3 years) breaking 240 is not as awful as it appears on the one-year chart because there is support all the way down. But think of how much resistance there will be on any rally if it does break that area.
Linde LIN is just about ready to fill that gap around 475. I would be inclined to sell some there. The stock has not had any selling in 2025, so the longer it goes with no selling, the more vulnerable it becomes. If it falls into that 440 area, I might be inclined to look at it again on the long side.
Taiwan Semiconductor TSM has resistance that starts around 190-200. I would guess this oversold rally stalls out around there.
