Complacency Is the Last Thing Standing
As stocks quietly weaken beneath the surface, investors continue to dismiss the damage as routine September seasonality. The problem is that the data keeps getting worse while concern remains scarce.
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There is some minor anecdotal evidence that sentiment is shifting, but not enough to tell me there is a change worth caring about.
For example, a guy on Financial television who three short weeks ago told us that the market was broadening out and rates and oil did not matter gave some speech on Thursday on television about how bad oil and higher interest rates were for the market. Maybe that’s because the RSP, which he was recommending a few weeks ago, is now down five percent.
Of course, then there are the folks –and there are many more of these types—who shrug and say, aw heck, it’s typical weak September seasonality. Perhaps that is why the put/call ratio does not rise. Perhaps that is why the ten-day moving average of the put/call ratio is still at .82
Perhaps that is why the American Association of Individual Investors (AAII) has just about as many bears as bulls. And these folks are known for jumping around like day traders. Yet they seem unconcerned. Even the NAAIM folks who had reduced their exposure from 102 a few weeks ago (on margin) to 84 last week are still in the mid 80s this week.
As someone noted to me, they have been conditioned to buy every dip or to believe nothing is a problem for the stock market. That is the complacency I see all around me. And in the data.
And all this time, the number of stocks making new lows expands. Heck, if when the chatter was not stop ‘broadening out’ a month ago, we’d seen as many stocks making new lows today as new highs then I too would have jumped on the broadening out train. The new lows on the NYSE are now at 320
There seems to be many of you who would like to rationalize this indicator by saying, ‘but but but the new lows are filled with bond funds’. To which I would reply: yes, but don’t we care about bonds and interest rates? And when you see the new lows screaming higher, it means rates are up. But for those of you who want to see the new lows using common stocks only, that number is 83.
Again, we didn’t see 83 new highs a month ago. And this is the highest reading since March. So the thought process is the same: more new lows is not bullish. More new highs is.
Nasdaq, which is not filled with bond funds (although there are some there), saw 420 stocks making new lows. That is the most since March as well.
If we take a look at the chart of breadth, we see that is now back to where it was in May/June. Yet the S&P can barely break 7600. So much for the broadening out trade.
We did not, however, see much selling in the market on Thursday. Downside volume chimed in at 76% on Wednesday, but Thursday it was 63%. The market is short-term oversold. The best rallies arrive when we are oversold, and sentiment is bearish. Right now, we have one, not the other.
But we did finally get the Daily Sentiment Indicator (DSI) on the bonds to single digits. It is now 9. The last time it was single digits was the waning days of 2024 (green arrow). We had one last fling, and that was that.
