Nothing Like Price to Change the Narrative
After a 50bps cut, traders were bullish. But then prices dropped!
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It’s funny how market narratives develop. After the 50 basis point cut and stocks soaring, my Twitter timeline and the folks on television were all, “Powell does the right thing’ and ‘Oh yeah’ about stocks but boy were they hootin’ and hollerin’ about precious metals.
Then the reversal came and the narrative quickly switched to ‘The Fed got it wrong’. As we have discussed, most are rarely happy with the Fed, so let’s chalk up Wednesday to it’s just another day ending in Y.
Breadth was barely red on the day. We’re into overbought territory, maybe the reason we reversed is as simple as that. And maybe we’ll rally on Thursday and folks will go back to loving on the Fed.
What we know is we’re overbought, both short and intermediate term. The number of stocks making new highs did not expand the last two days, not on Nasdaq nor the NYSE. That tells us stocks are overbought and tired. The NYSE saw 415 new highs Monday then on Tuesday it was 392 and Wednesday, even with that midday surge, they clocked in at 387.
Nasdaq isn’t much better with 377 new highs on Monday and 313 Tuesday. Wednesday was better than Tuesday but still fewer than Monday at 335.
Then there is the VIX, which, despite the rally, had a very hard time getting red and staying red, so it continues to make higher lows. The Daily Sentiment Index (DSI) is back at 20.
The US Dollar tried to break down as well. But it couldn’t. My contention has been that this 100.50 area on the Dollar Index should hold for now. I might feel differently a few weeks from now but for the last month I have been in the camp that says it doesn’t break. It tried to break and reversed Wednesday.
That means Gold and Silver reversed too. Recall the DSI for those precious metals was 85 earlier this week. They now reside at 73 (gold) and 72 (silver).
Bonds saw rates higher. I have been looking for rates to back up for a few weeks now, and I have been wrong, but at least on Wednesday, they ticked upward. I think they get to that blue downtrend line which is around 3.80% on the Ten-Year.
On the sentiment front, it will be no surprise that the Investors Intelligence bulls notched up to 49% but what I find very curious is that the bears were up fractionally as well and believe it or not that puts the bears at the highest level (22.9%) since we were at 26% one year ago. In the big picture, bears at 23% is not high—there are still more than two bulls for every bear—but it’s certainly not what I expected with the S&P making new highs.
We may very well see the market reverse Wednesday’s decline and rally on Thursday or even Friday, but I am still looking for a bout of volatility into the end of the quarter.
