Is This the Reason Folks Finally Decided They Needed to Hedge Their Bets?

Maybe the day was more about the end of the month than it was a continuation of what we’ve seen over the last two weeks. What we’ve seen over the last two weeks has been gaps down and a lot of sell the news.

Maybe the jobs number will save the market on Friday. I wouldn’t even be surprised but let me note that both the NYSE and Nasdaq clocked in the most stocks making new lows since April. Think about that for a minute. None of the indexes, not even the small-caps, are anywhere near where they were in April yet there are over 200 stocks making new lows (between both the NYSE and Nasdaq) now. What will that number be if we get back down to the April lows? Heck, what would that number be if the S&P backs off to say 6,000?

But once again it is the chart of the SOX that has my attention. The semis are supposed to be the leaders. They certainly have had one heckuva run since April. More than I thought they could. But look below at the SOX relative to Nasdaq. It never even got close to the highs from a year ago. It barely got over the January high (the ratio). And now the ratio is lower than it was as we entered the month of July.

The SOX itself has mostly been marking time this month. Unless/until it breaks 5500 it’s holding its own. But think about it for a minute. The top five holdings in the SOX are: Advanced Micro Devices AMD, Nvidia NVDA, Broadcom AVGO, Texas Instruments TXN, and Qualcomm QCOM. The good news is the top three haven’t shown any signs of rolling over yet but Texas Instruments, which we looked at two weeks ago, gapped down and continues down. Qualcomm just broke down Thursday.

Maybe Qualcomm will be different but most stocks that have gapped down have continued lower over the course of the next week or so.

Micron Technology MU is number six on the SOX list and it was down 15% in the month of July. The good news is, like Netflix NFLX, it has not gapped down, it has just been a steady decline. The other good news is that it is coming into support. But basically three stocks are holding up the index.

If the semis are supposed to be the leaders, this is not great action. Maybe that’s why the put/call ratio jumped up over 1.0 for the first time since April. Did folks finally decide they need to hedge or buy puts? It seems so.

That high put/call ratio has lifted the 10-day moving average of this metric (see above). A few more readings like that and this will be 0.95 in no time. My guess is with the action we’ve seen the last two weeks it won’t take much to get folks bearish, at least not the options folks.