The Violence Is Over, but Is the Great Unwind?
Following two big down days, the violence seems to be over, leading to a change in the pattern.
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It appears to me as if the Great Unwind’s violence is behind us now. I said this yesterday but Thursday’s action solidified it for me. It solidified it because we finally got everything moving in the same direction. Whether that is up or down, it is a much healthier market when everything can ebb and flow instead of either/or.
As far as the indicators go, let’s go back to the net volume on the Nasdaq. Yesterday I explained that we had the first net negative day for volume on Nasdaq in fifteen trading days and I thought that was a big deal. Today I can report that with Wednesday and Thursday both down with net negative volume, those were our first consecutive red days for volume since—wait for it—April’s decline. Wow.
And that is a change in pattern. Will it matter in the next day or two or even the next week? Maybe. But mostly for me what it does it tell me the fever has broken. The pattern that has been in place for three months has changed.
Notice that the QQQs are right at this uptrend line. They are also right near the June mid-month low around 475. This line has been in place since April so it represents that uptrend and the volume pattern discussed above. With the QQQs down about five percent in a week and sitting at that line I wouldn’t be surprised to see a bounce.
However based on that change in volume pattern, I do not expect we are going right back to ‘all megacap all the time’. Rather my guess is a bounce and then we see them come down again. It may turn out to be a bounce and down like April into early May, but I’m leaning toward that line breaking sometime in August.
Elsewhere the banks stopped (for now) right at that 115 level I have been highlighting. I do not expect them to give up easily but as I have noted I think a correction is in order for these stocks. There was too much love and too much resistance up there.
Sentiment, using the American Association of Individual Investors (AAII) saw the bulls climb to 52.7%. That is the highest reading since they were 52.9% in the final weeks of the year. So we can see that when the 493 rally these particular folks get more bullish.
However, the folks over at the National Association of Active Investment Managers (NAAIM) clearly prefer when Mega Cap stocks are all the rage as they pulled in their horns, having reduced their exposure to the market from over 100 two weeks ago to 85 currently.
