The Market
Note: I will be on vacation beginning Friday for a week. The next Top Stocks will be June 21.
If you are looking for the reason the market finally fell, then please don’t look at me for an answer. The one thing I can tell you that I have learned in so many decades of doing this is that markets that get extreme in one direction get extreme in the other. Had we corrected, as I think we should have, two weeks ago, the decline would probably have been more gentle and less severe, but instead we went to an extreme on the upside and thus we got the worst day since March on the downside.
We also changed the pattern as we now have the first three consecutive down days since late February. We also saw the McClellan Summation Index stop going up. So it took three down days to get that. I’ll have more on this below.
What else did the day bring us? On the positive side, it brought us a day when 98% of the volume on the NYSE was on the downside. Lopsided downside volume like that often leads to a short-term bounce. It brought us a big move in the Volatility Index. I’d like to call it jumpy, but my guess is there will be another push upward in this chart.
It brought us a decline to the well-watched 200 day moving average. And it brought the Invesco (QQQ:Nasdaq) QQQs (and many other indexes) to their recent uptrend lines. The QQQs also had their highest volume reading in a month.
Those are all reasons we ought to see some sort of rally attempt either Friday or Monday.
Here’s what I don’t see, though. I don’t see a lot of concern and fear and panic. There was more panic in mid-May than there is now. How do I know? Well the put/call ratio zoomed to 117% in mid-May and Thursday it limped over the line to 101%. Down below, you will see the 30-day moving average of this indicator and how far down it has come. It wasn’t even close to this level a month ago. Now it is at an extreme.
As for the McClellan Summation Index, this is where we need to pay close attention. The last few days have seen Nasdaq close higher with crummy breadth underneath. Should we get a bounce in the next few days (we should) and breadth is crummy and the Summation Index heads down instead of rallying, then that’s when we’d see the deterioration.
I should also note the island that has been left overhead on the S&P. We had one in early April (green box). If the S&P cannot refill that gap at 3200, that does not bode well for the intermediate-term for the S&P.
I suspect we’ve finally turned the market back to a period of higher volatility. Of course that would be the case, since I am heading out on vacation Friday.
New Ideas
Since the drug stocks got hit so hard Thursday, I will note that if Johnson & Johnson (JNJ) cannot recapture that $142 level in a hurry I don’t want to stick around, because it would mean it is more likely to come down and fill that gap around $134-$135.
Today’s Indicator
You can see how extreme to 30-day moving average of the equity put/call ratio is.
Q&A/Reader’s Feedback
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Thank goodness our long trade in Schlumberger (SLB) filled the gap before it died. But the question is if that island it left overhead from the last four days matters. I would think it does. I would also think we see a bounce off that $18 support area, but if that bounce cannot fail that gap over $20, then the next move would be back into all that support below.
AT&T (T) had a good run off that $28 area, and now I would wait for it to get back down there again. The $28-$29 area should find some support.
Wells Fargo (WFC) might get interesting again around $25, because that could make it the right shoulder of a head-and-shoulders bottom, but I think I will wait to see if it can get down there and make an attempt to hold.
