If Investors Are Euphoric, Why Are Stocks Down?
Is the Great Rotation to blame? What's up next for the market?
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I have been advocating that we would not see the market get intermediate-term overbought until later in the month. Have we jumped the gun?
Or has this bifurcated market changed things? My indicators are based on what the majority of stocks are doing, not what the index is doing. They used to be one and the same, but as you know that has changed this year.
In any event, let’s run through some of the indicators. The Overbought/Oversold Oscillator is not oversold. I do think we can see the market rally on Thursday or Friday, but not because we’re oversold, just because the QQQs QQQ are nearing a support line. And we know the mega-cap tech stocks control the indexes.
The McClellan Summation Index has now turned down and turned south from a lower high. It now joins the Summation Index for Nasdaq, which turned down earlier this week.
I had thought the Volume Indicator would zip up to the 55% area (overbought) before the end of the month but so far it has sat there at 52%, unable to go up or down. The window remains open for another week.
Then there is sentiment. All those sentiment indicators I have been harping about for the last few weeks are still in euphoric territory. First let me say that I think the last week in the market has gotten the chattering to a more bearish tone. We saw it a few days ago when the ISE call/put ratio for equities fell to its lowest level in months. We saw it Wednesday when the put/call ratio zipped up over 1.0 for the first time since May 30th. That is the type of stuff that will eventually push these sentiment indicators from the euphoric levels.
In the meantime the Investors Intelligence bulls are now at 64.2% and the bears fell to 14.9%. This means that the Bull/Bear Ratio is now over 4.0. It was last here in early March. You can see on the chart each time it has ticked over 4.0 the market has done something (correction/pullback) to get sentiment to change. That is why I still believe even if we do rally in the next few days we are not yet done with this pullback.
In March/April it was enough to get the bulls back down to 47% and the ratio of bulls to bears back to nearly 2.0. I believe that over the next month or two we should see something that shakes the confidence and sets us up again in an oversold condition with negative sentiment.
I was part of a webinar yesterday. If you would like to view it, here is the link:
