A Change in Tone — And Minds
Here's what turned my head on a day when those lines (yes, those) finally broke and what could lead to a short-term rally.
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The Market
Well at least we finally got a change in tone in the market Monday. We’re no longer seeing folks laugh and say stuff like "stocks always go up." Now I’m hearing numbers put on a correction: could be 5% or 7% one fellow said. Heck, the S&P 500 is already down 4% so that’s not exactly a big deal.
But then one guy said it could be 10-15%. That turned my head.
The other thing that turned my head was that for the first time since November 6th —so almost six months! — the ISE call/put ratio dipped under 1.0. That means for the first time in six months folks bought more puts than calls. How’s that for a change in tone?
There were no extremes in the market Monday. By that I mean the down volume did not get over 90%, nor did the VIX get jumpy, even though it was up.
The biggest change was the aforementioned sentiment and the number of stocks making new lows skyrocketed. The Nasdaq saw the most new lows (338) since we were just coming off the lows of last fall. So yes, folks changed their minds today.
Are we oversold enough to rally? I think so. The McClellan Summation Index is heading down but it now requires a net differential of +5,100 advancers minus decliners to halt the decline. Once we step over +4,000 we’re oversold (short term) You can see the prior readings in this area led to a bounce.
You can also see that readings this high are rarely if ever THE low but rather a bounce spot. That’s my call. Because I think we get an oversold bounce and then I think we come down again. We are going to have to cycle those intermediate-term indicators back to an oversold condition and we are going to have to change sentiment more. But Monday was a step in that direction.
One last point. The line on the S&P 500 finally broke. It also broke on the Nasdaq, which closed under 16,000. I would think a down open Tuesday would lead to a short-term rally. I would not wed myself to the rally.
New Ideas
I said last week I thought TLT would bounce off this $88-89 area and I still think it will. I also said I could calculate a next target on the yield on the 10-year around 4.65% and we closed at 4.62%. The DSI is at 38 so this is unlikely the low, probably just a bounce for now.
Today’s Indicator
The 30-day moving average of the advance/decline line is not oversold. My expectation is that we are at least three weeks away from even thinking it could be close to an oversold condition.
Q&A/Reader’s Feedback
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Eli Lilly LLY hasn’t gone anywhere since February but it hasn’t broken down either. We have seen a lot of stocks break the equivalent of that blue line on their charts and they held for a few weeks but eventually they headed down. I would think LLY will eventually head lower and at least test that $725 area.
Visa V is one of those charts that broke the line (we looked at it a few weeks ago) and today it gave way. That top measures into the $260 area. I would not expect it to get there in one fell swoop but I would expect it makes its way there over time.
It’s Pool POOL season and at least the stock hasn’t given back all of its February gains. However, that gap down last week measures to $360-ish.
