SOX and Bonds
What's going on with the Semis? While they took a dive today, you know what rallied? Bonds.
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Are the semis in trouble? Maybe. They were overbought (still are) and over-loved after that move up from 4400 on the SOX. I can just as easily see them going back into a prolonged sideways move as anything else.
Sure they gave up seven days of trading in one day which is not exactly a bullish move, but they didn’t break anything. I can step back and say maybe that’s a head and shoulders top but I can also say that they have been in a wide trading range since March. With the exception of June and July, this group has traded between 4400 and 5400 most of the year. Yet everyone thinks they have been awesome.
Think of it like this: the industrials as represented by XLI are up 25% on the year and so is the SOX.
And while everyone was fussing over the semis, no one even bothered to notice the bonds. TLT gapped up for its first time since October 1st. And it closed at the high, something it didn’t do on October 1st. Maybe I don’t need a thicker Sharpie now. In any event, I don’t expect the rally in bonds to be smooth but I do expect this will work its way to fill that gap near 97. I saw a chart today, courtesy of the BofA Global Fund Manager Survey, that showed the largest monthly change in net percentage of bond allocation. Perhaps there was a larger one before they began tracking it but their chart went back to 2001 so 20+ years is a long time. Folks did not pile out of bonds like this in 2022 when the Fed was hiking and we had terrible inflation.
I do not have their permission to post it here but I did tweet it out so you can look in my Twitter feed for it.
It’s been a while since I discussed the McClellan Summation Index, so I want to point out that despite the move in IWM over the last few days, despite the improvement in breadth (breadth was flat on Tuesday), the Summation Index has continued on its path lower. Keep in mind, this is the indicator I use to tell us what the direction of the majority of stocks is.
Despite the better breadth these last few days this indicator still needs a net differential of +700 advancers minus decliners on the NYSE to halt the decline. Keeping in mind the small caps will be overbought in another few days, it’s something to watch.
On the sentiment side of things, there was little movement. The Daily Sentiment Index (DSI) for the VIX popped to 18, so it is still a teenager (and the VIX continues to look to me as if we should expect a bout of volatility) and the S&P backed off to 79.
At least the Oscillator pushed up over the zero line.
