Atrocious Charts Aside, We Should Still Rally
The Market
The charts look awful. Yet we are oversold and really should rally. You know my reasons why I think we should rally, but I will list them once again: We are oversold, both short- and intermediate-term. Sentiment is terrible. No matter what metric we use, it is hard to find a bull.
The American Association of Individual Investors saw bears over 60% for two-straight weeks, something that hasn’t occurred before. Long-time readers will know that I think AAII is useless, unless it is accompanied by other indicators that confirm it. So I’m partially willing to go with AAII, because the Investors Intelligence bulls are so low (recall the bears there are only 34%).
Also the National Association of Active Investment Managers Exposure is down to 12.6. It was just over 10 at the 2020 low. In October 2008, it got to 3. So, sure, it can go lower but it’s awfully low now.
The 10-day moving average of the put/call ratio (chart shown below) is set to peak in the next few days, and what’s even more curious is it hasn’t even gotten "as bearish" as the May peak got.
The International Securities Exchange Equity Call/Put Ratio fell under 1.0. In 2022 it has done so four other times. I have noted them on the chart of the S&P below. In each case you can see we were very close to a rally.
There were fewer stocks making new lows today, both on the New York Stock Exchange and Nasdaq.
Bonds did not get crushed today and the dollar was down. Even the transports did not revisit the lows from earlier in the week.
What are the reasons to be bearish? We can begin with how terrible the charts look. We can also note the McClellan Summation Index continues to head down. To that I can add the utilities have collapsed. And finally the Volatility Index has never gotten jumpy. It is a bear market and I still think we should rally in early October.
New Ideas
I am going to reiterate that Starbucks (SBUX:Nasdaq) is coming into the area I think it is a sale at $88-$90.
Today’s Indicator
The 10-day moving average of the put/call ratio is discussed in full above.
Q&A/Reader’s Feedback
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SAGE Therapeutics (SAGE:Nasdaq) is quite similar to the chart of Yelp (YELP:Nasdaq) we looked at a few nights ago. The potential for a base is there, but look closely: The stock has not had a higher-high in over a year. Higher lows are the first leg of the stool, but higher highs are needed, as well. There are two choices here: Buy now anticipating it will go up and over $45 (using a stop under these September twin lows) or wait for the stock to trade over $45, like it means it. You might miss the first 10% up, but at least it will be a higher-high.
I don’t love the Home Depot (HD) chart because it is probably being held up due to Hurricane Ian. That having been said, if it can stay over $265 then It should make it back to the $290 area.
Lululemon (LULU:Nasdaq) has held up rather well thus far so why is it that I think it is going to break that line? If it breaks it I think it tests that May low.
