The Bulls Streak, but Did the Bears Have Enough Whoosh?
After a strong week, let's take stock of where we are and where we are likely to go.
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If the S&P is green on Monday, it will match the longest streak of up days it has had since coming off the low last October. I can understand coming off a low last October where we were grossly oversold, both short and intermediate-term. I can understand coming off that low when sentiment was screamingly bearish.
But did the whoosh in early August really get us that oversold? Did the whoosh in August really get folks that super bearish? I have my doubts. I do, however, think what we saw last week was an oversold rally that caught folks offside. It feels similar to that rally in small caps that we saw in July. Like quick, everyone run to the other side of the boat. Wait, back to the other side now.
I thought we would see the Overbought/Oversold Oscillator rise up over the zero line late last week and it did. I think regardless of what the market does on Monday (unless we get some sort of crash, which is not what I expect) we will see it rise further. It is the math. But by Tuesday it appears just about done (overbought).
Speaking of math, many of you have asked to see the math behind the Oscillator, here it is for the NYSE. You can see that big negative number we drop on Monday, but after that, it shows decent sized green (black) numbers to drop. But while you’re looking take a gander at the numbers to be dropped on the 30 day moving average (my intermediate term Oscillator) since there is not much red to be dropped there.
If we use price instead of breadth we look to the Nasdaq Momentum Indicator. A few weeks ago I was plugging in lower closes for Nasdaq and the indicator turned up (a sign of being oversold). Now I have plugged in higher closes for Nasdaq over the next week or so and Tuesday it starts heading down which makes it overbought.
As a reminder, the exact day is not the takeaway here, the takeaway is more like ‘early this week’ or ‘midweek’ so if we rally on Tuesday don’t jump the gun thinking, we’re not overbought.
We can even see the overboughtness when we look at volume. On this chart I have plotted the 30 day moving average of Nasdaq volume relative to NYSE volume. The thinking is that when this gets stretched too far, folks have gotten too ‘speculative’ (meaning they are no longer hugging the safety of the NYSE type names and have branched out to the more risky Nasdaq names.
So while breadth has been good, and made new highs (bullish) I still think we get a pullback this coming week. While right now I am thinking the pattern maps out something like I have drawn in blue I am very much aware that I thought something similar in 2022. And that didn’t pan out.
