Investors Are Finally Noticing What the Market Has Been Warning About
Industrials, transports, and equal-weight stocks are struggling, while market breadth continues to deteriorate. The question now is whether fear has arrived too late.
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The Market
Today was a bit different than what we’ve seen. Today, folks noticed the selling in the industrials. They noticed the selling in the Transports. They noticed there has been no broadening out.
I’d like to think it was a Realization Day, but it feels like it’s too soon for that. What I see is that the selling in the others is finally taking hold. After so many down days, a bounce is possible–likely, especially now that the RSP has taken its first trip down there in quite some time.
There is still much concern about the bonds (as there should be), but the selling in the bonds was tepid today, and the DSI remained at 14. The Utes, however, bounced nicely. I am still of the mind that they are groping for a bottom, but groping is the key word!
Down below, you will see the McClellan Summation Index made a lower low. It now needs a net differential of +2300 advancers minus decliners on the NYSE to halt the decline. At +3000, it gets a bit oversold. At +4000, it is solidly oversold.
But it’s sentiment I want to address. Last Thursday, the equity put/call ratio fell to .39, the lowest reading since the waning days of May. On Monday, it scooted right up to .7 so folks had a change of heart. Today, the total put/call ratio was .98. This is the highest reading since July 29th, right near that low in the market.
The issue is the various moving average lines are nowhere near the top of the page. Most remain very close to the bottom of the page, so one day of fear is not enough for more than just a bounce. In fact, look at the 21 dma of the put/call ratio for ETFs. It is now lower than where it was at the June high. It seems to me all those calls will have to be unwound in some fashion. In other words, the market will have to do something to push this higher. You can see where it was at the July low (1.15) vs where it is now.
The good news is the VIX has finally moved. Maybe it will get jumpy in the next week.
New Ideas
Someone asked me about Meta (META) a few weeks ago when the chart was around 600. I pointed out the wide range the stock has been in and noted that when it is near the lows, we buy it, and near the highs, we sell it.
But in the past few weeks, it has not made a lower low. It hasn’t made a higher high either, but I’m inclined to think it is improving for the first time in ages. Stocks that don’t make lower lows when the index they are in does, do catch my eye. If it breaks 550-ish, I am wrong.
Today’s Indicator
The McClellan Summation Index is discussed in full above.
Q&A/Reader’s Feedback
XLI, an ETF to be long industrials, is a group I have harped away about in terms of its poor action for weeks now. It is now down almost ten percent and coming into support in the 170-172 area. I’d look for a bounce from that area, but I would not be surprised if this eventually filled the gap near 164-165.
JB Hunt (JBHT) hasn’t broken yet, but if it can’t recapture 265 in a hurry, then I would say it is likely to come down to that 240 area.
I did say a few weeks ago that if Oil crossed this downtrend line, it would be a big deal. It is. But the DSI is now 85, so it is getting stretched a bit. The DSI on gasoline is 86. If oil and gas rally much more, these could push over that 90 level, which would then be bearish.
