Sellers Show Up as Tech Reaches Overbought
Are we due for some volatility? You betcha. Tech momentum seems to have hit a wall, with sellers beginning to take profits.
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Tuesday may have been the first day we felt the tiredness in tech. And by tiredness, I mean overbought-ness.
Yesterday, I explained that using my Overbought/Oversold Oscillator, I expected a short-term overbought condition to develop by midweek. So let’s call that Tuesday to Thursday. But the first sign of it showed up on Tuesday because, for the first time in nine trading days, there was more volume on the downside than the upside for Nasdaq.
Yesterday, we talked about the lack of new highs. Today, let me point out that Nasdaq’s new lows are once again pushing up toward 150. My general rule of thumb for this market has been once we push into the 200 area, it becomes a problem. Notice we got to just shy of 200 new lows when Nasdaq was at 26200. It had one more push up to 26500 with new lows expanding, and then we had a quick three-day sell-off.
Aside from that, none of the indicators changed. We saw the ISE Equity call/put ratio notch up to 2.93, so once again it is flirting with 3.0. It was 2.92 on May 14th. Nasdaq was down just about 750 points over the ensuing few days. I call that knocking on the door of giddiness.
The DSI for Nasdaq hasn’t changed in days (still at 80). But the DSI for the VIX dropped to 13. That puts it firmly into the yellow flashing light zone. Under 10 and I should start using red light emojis here!
I do, however, want to note that despite the nine straight days of green for the S&P and Nasdaq, folks seem to be giddy about tech but little else. Heck, I don’t even hear anyone saying they want to buy energy when it comes down. That was the call I heard nonstop for weeks. Then last week, the XLE fell nearly ten percent, and there was silence.
Yet look at the chart of XLE, now with two higher lows. You know you are wrong if it breaks back under 55-56, but I tend to like it when folks forget they liked something because it went down.
Even the metals are coming alive again. Or trying to. XME has rallied nearly twenty percent in two weeks, but these days, who needs twenty percent in two weeks when you can have twenty percent in an hour? Well, I’m old, and I prefer gradual. I’d love to see XME dip back toward support first.
Once again, I think we need a bout of volatility to shake things up. We’re overbought short term, and the sentiment is mostly complacent with a bout of tech giddiness.
