We Took Our Medicine Today
The question is, do we need to take more to get healthy?
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Now that wasn’t so bad was it? Well, of course, the majority of the selling was in the small caps because that’s how my indicators are set up since they are based on breadth. But overall, it felt like a standard overbought day.
And we killed the winning streak, something that I cherish, as I explained yesterday. But let’s explore the situation once again. We are short-term overbought. Tuesday’s session took the Overbought/Oversold Oscillator down some, but the best I can see is a chopfest, and mostly, I see a pullback in the market in the next week or so.
The 30-day moving average of the advance/decline line is also overbought. The Volume Indicator is at 56%, which makes it overbought as well.
Then there are the number of stocks making new highs. I don’t expect them to fly up to where they were pre the early August whack, but notice the NYSE has not seen much of an increase in four trading days. In those four trading days, the S&P is up about 150 points.
That is the conundrum. While the standard breadth indicators show strength: the cumulative advance/decline line at a new high, the McClellan Summation Index rising, and upside volume over 80% for a few days in the last week, the number of stocks doing well is lacking. The rally has been led by the index movers.
But what I really want to note is sentiment. The put/call ratio reached 1.28 on August 5th. A few days later it was still high at 1.19. Heck, right through last Wednesday it was still in the 90s. But the last two days, this metric has slumped, as if all of a sudden everyone is buying calls to bet on Chair Powell’s comments late this week.
On Monday, the total put/call ratio was .72, which is quite low. The equity portion was .47. Readings in the 40s are generally ‘too much’ and therefore bearish. But it wasn’t just the equities. The Index put/call ratio was .88, and the ratio for ETFs was .83. There was nowhere that there were more puts than calls traded on Monday.
Tuesday’s total put/call ratio was .82, which I grant you is up some from Monday, but when we consider how cautious folks still were last Wednesday, this is still on the low side.
Now, take a look at how fast that ten-day moving average has come down. It is now a smidge under .95…that’s more than ten points in a few days. At this rate, if it doesn’t start climbing over 1.0, this moving average is going to be under .90 in a few days.
Folks have put a lot on Chair Powell’s speech on Friday. And this goes hand in hand with the weak dollar. The chatter has picked up a bit on Tuesday but the US Dollar has slid more than four percent since early July and is closing in on the December lows. It is my view that the lows from late last year should hold (it is the first trip down there) but more than that, the Daily Sentiment Indicator is now at 17. If the buck falls much more the DSI is going to fall into the ‘too much’ side of the ledger. In fact, if it is down again on Wednesday, I expect we’ll see nonstop Dollar chatter.
