The Broadening Out Trade Seems to Have Petered Out
With RSP on the decline and new lows spiking, the market isn’t as strong as the S&P 500 would make us think.
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I wish I could tell you how many times I heard on Wednesday how the ‘market’ is holding up so well. I believe what these folks mean is that the S&P is holding 7630, on this now third visit down there. In that assessment, they would be correct.
But you do not get my Overbought/Oversold Oscillator falling to levels not seen since the March/April low if the market is holding up so well. There has to be a fair bit of selling to get down there.
You do not get the number of stocks making new lows to exceed where they were at that spring low if the market is holding up so well. The S&P is over one thousand points higher than it was then, yet we have more stocks making new lows. How does that translate to the ‘market’ holding up so well?
You do not get the Hi-Lo Indicator to .33, the same level t was at the spring lows if the ‘market’ is holding up so well.
You do not get the McClellan Summation Index, which did slip under the zero line on Wednesday, to look like this (and go negative!) if the market is holding up so well.
And surely you do not get the Volume Indicator plunging to 49% if the market is holding up so well.
Ahh, but you see, if they acknowledged all of these things, they would have to admit that all their love for the ‘broadening out’ trade was dead wrong. And on Wednesday, I saw an awful lot of ‘hey, have you seen the equal weight’ comments. Oh, the comments were mostly by those who tend to notice things first, not the huddled masses, but that break I highlighted a few days ago continued quite easily on Wednesday.
This takes the RSP back to where it was in early July, having now officially given up the entire early August gain. The problem is that if we look at the data underneath, such as new lows, even this now broken chart doesn’t represent the average stock, does it?
As for the chatter being bearish, I am not so sure it’s as bearish as we think it is. I heard more folks with the ‘market holds up well’ this week, rather than ‘we could drop 5-10% and still be okay’. And for all the chatter, there is no sign that anyone is loading up on puts to hedge themselves.
The put/call ratio for equities on Tuesday was .49. The total put/call ratio was .82 on Wednesday. So maybe some of these strategists think everyone is bearish, but I have seen no data suggesting such.
The closest we’ve come is the Investors’ Intelligence bulls are down to 50%, having gotten to 57% a few weeks ago. That’s at least something.
In any event, the market is oversold, and there is still a lot of complacency.
