Oversold Means a Loss of Downward Momentum. So, Are We There Yet?

NYSE Trader

The Market

Today was a mostly meandering day unless you were a commodity stock. Then the moves were violent.

But banks did what they have done all week, which is sit there. Software did what it has done all week, which is sit there. The Transports –despite the hysteria in oil we’ve seen all week—have sat there all week as well. In fact, well before we got the FedEx earnings after the bell, the Transports are up on the week. The Transports have been green for four of the last five trading days.

You know what else has been green four of the last five trading days? The SOX.

The S&P? It’s down a mere 25 points on the week.

I bring all of this up because, in my estimation, despite all the milling around in so many groups, the sentiment has turned decidedly negative. I got the sense it was a bit panicky before the market opened today, but in the end, the panic lasted five minutes.

I believe this is because the market is oversold short term. Maybe it hasn’t rallied as we are used to, but the downside momentum has stopped. And the definition of oversold is the loss of downside momentum.

The AAII bulls did not change much, but the bears scooted up to 52%, so they have come out of hibernation. The NAAIM folks have reduced their exposure to 60. While 60 is in the middle of nowhere, I believe it shows us that despite the mostly choppy market this week, sentiment is getting more concerned, more cautious.

And keep in mind, all those puts we saw trade on the Russell are coming to pass, as that index is up on the week and was the only major index up on the day.

My own Overbought/Oversold Oscillator is now oversold enough to see a lift, not just some sideways action. But the intermediate-term indicators still need some more time.

New Ideas

I want to reiterate that I do not like the Utes up here. Thus far, (XLU) has held 46, but I suspect we will see that break in the coming weeks. I will be wrong if XLU rallies well over 47.50.

We looked at United Parcel Service (UPS) a few days ago, and I noted it had some support in this mid 90s area and should bounce. If this FedEx news helps UPS bounce, I just want to remind you that first resistance is 99-100.

Today’s Indicator

The ten-day moving average of the put/call ratio is now the highest it has been since April last year, but I thought I would show the longer-term chart today so that you can see a spike to well over 1.0 (current reading .98) is a more intermediate-term level. This area is often good enough for a short-term rally.

Q&A/Reader’s Feedback

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Someone asked me about Cheniere Energy (LNG) in early January, and I thought it was a bullish chart in that 190-195 area. I wish I had realized exactly how bullish it was! In any event, it broke out on the war news, but the first measured target is 295, which it tagged today. I would probably take a little something off the table because anything that rallies 50% in such a short time frame is subject to large pullbacks. If you are looking to buy, I would need a new pattern to set up.

We had a nice trade in Amazon (AMZN) in February when it tagged 195 support and then filled the gap at 220. Now I am not as enthusiastic about the chart. If it holds 205, then I suppose it will be okay. If it breaks it, then I think we’re looking at another trip down to 195 over time.

If American Express (AXP) can stay over 300, I’m inclined to buy it for a trade. I would feel better about it if we were intermediate-term oversold, but for a short-term oversold condition, it could be a decent short-term trade.