Panic? Oversold? Not So Much.
Stocks fell on Monday, but the damage was worst among the Mag 7 stocks. Otherwise, there was a bit of rotation. What's next?
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The Market
So much for the oversold rally. It lasted a day. But here’s something interesting. Last Tuesday, the S&P closed at 5778, and Friday it closed at 5770. So basically, we used up that short-term oversold condition by going nowhere.
Can we recapture it? We can, but the same way we jumped the gun on the oversold rally in January, and it had no follow-through was a big change in the market, so is this failing to rally at an oversold juncture.
The Nasdaq Momentum Indicator actually went up because, for the latter part of the week, we lost the downside momentum. That momentum picked up again today. And if I walk Nasdaq down in the coming days the indicator does not go down. But notice that it churns whereas last week it went up.
My own Oscillator, you can see, also went up last week, so it is oversold as well.
Once again, there were fewer stocks making new lows. That’s because the market feels more like it’s a giant rebalancing rather than a wholesale decline. The index movers are pushing the indexes down but so many stocks are just sitting there. Staples, drugs, Utes, homies, all slightly up or sideways.
The Hi-Lo Indicator for Nasdaq is now at .16 (oversold) but the NYSE is still at 27. The Volume Indicator is still at 48%. The 30-day moving average of the advance/decline line (shown below) looks oversold, but the math behind it says not so much.
But did we have panic? There are small pockets of panic like the QQQs finally clocked in with over 70 million shares traded, the highest since early August last year. But down volume was a mere 76%. 90% is considered panicky. I believe it was only 76% because of that group rotation.
Finally, the DSI for the S&P is at 38, and Nasdaq is at 32 so there is nothing extreme there yet. The DSI for the VIX is at 78 so I do think that is getting extreme, even if the VIX is not yet jumpy.
The put/call ratio has yet to get over 1.0, so I don’t see any panic there. The ISE Equity call/put ratio has seen a reduction in the calls bought as the ten-day moving average is now at 1.80, down from 2.70 in January. It is not extreme (and the more intermediate-term 21-day moving average has not come down enough to talk about). But we can see that the last two weeks have finally reigned in the call buying.
In sum, I still think we should have a short-term rally, but this looks different than, say, early August when we had real panic and an oversold market.
New Ideas
As always, if I am playing for a rally, I use an index. And remember, this is a trading market.
Financials have been taken to the woodshed (I have not liked them for a while), but I noticed that Goldman Sachs GS is filling the gap from the election, so it ought to bounce. I’d sell if it can get to that line around 575.
Today’s Indicator
The 30-day moving average of the advance/decline line is discussed above.
Q&A/Reader’s Feedback
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AbbVie ABBV has been on a tear. If I do a measured target on it I come up with something in the 220-225 area. I’d be keen to take something off the table there only because it would have been up 30% since January, not because it has done something wrong.
RH RH should really have a bounce off that 220 area but consider that it should have bounced off 300 and didn’t. It should have bounced off the gap fill at 260 and didn’t. It has been cut in half, and that is not bullish. I’d sell a bounce.
Pfizer PFE has done better than most, but it still has that resistance at 27-27.50 that it struggles to get through. I am still positive on it, but I think it is going to take a lot more time.
