This Week, the Plan Hasn’t Quite Come Together
The market finally got oversold, but not in the manner I expected. Let’s see what’s next.
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Note: Due to the market holiday on Friday, my next column will be Monday morning.
There used to be a show on television, back in the 1980s, called The A-Team. The leader of the team would create a plan, but things never went according to plan. Chaos always ensued. But in the end it all worked out, and the leader would say, “I love it when a plan comes together’.
When the market responds to the indicators, or my interpretation of the indicators, no matter how much chaos shows up before, I often think: I love it when a plan comes together. Well, this week the plan has definitely not come together.
Sure, we rallied a few days before we got officially oversold, but that happens often. I don’t tend to quibble since my indicators are meant to find a general time frame, not an exact day. And even though Monday was up with terrible statistics (recall net breadth was +300 with the S&P up over 120 points) I still thought we’d get a pullback on Tuesday and rally again.
Instead, we got the SOX to pull back on Tuesday and rally again. But that was it. And even the vaunted semiconductors couldn’t keep the S&P from tumbling over one hundred points on Wednesday.
So, are we still in shape to rally again? We are. But despite the decline on Wednesday, I saw no signs of panic. For example, last week we saw the volume in the QQQs surge to over 90 million shares for a few days. This week’s decline in volume in the QQQs has been about half of that.
If you squint hard, you can see the Nasdaq Overbought/Oversold Oscillator actually ticked up (although it remains under the zero line) on Wednesday. That was the math. But let’s discuss that Nasdaq has made higher highs, and the Oscillator can’t even get over the zero line. That’s the narrowness of the rally.
About the only good news is that –at least for now—the number of stocks making new lows on Nasdaq has not crept back into the 200 area. Not yet, at least.
However, once again, I want to discuss the Transports. How is it no one seems to care that oil has tumbled ten bucks and the Transports are down nearly five percent this week? I mean, it doesn’t even get an honorable mention. Maybe folks are too focused on SpaceX. I, however, care about this.
And I care about it because crude oil’s tumble continues to look awful. It’s a chart you could only love if you stand on your head or turn the chart upside down. For those who ask what a top looks like: this is it, lower highs and lower lows. A downward channel.
But here’s the twist. The Daily Sentiment Index (DSI) is down to 17. If WTI comes down to tag that lower line, I would think the DSI would go under 15 in a hurry.
We know I am terrible at narratives, but are the Transports (and the DSI for WTI) telling us maybe folks are just too bearish on oil right now?
