When Will the Key Stocks Start Caring About Bonds?
New lows topped 900 Thursday. That’s a lot. Plus, if my mother calls about interest rates, we’ll have a trifecta.
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Note: I am going on vacation for the next two weeks. My next column will be Monday, October 12th. Do you think the market will behave itself while I’m gone?
Thursday’s flat market did not resolve anything. Anecdotally, I see some folks who were bullish mere days ago getting a bit more cautious now because of the move in rates. But I have yet to see that translate into any hard data.
For example, the put/call ratio was 0.80 on Thursday. Heck, Tuesday and Wednesday saw the equity put/call ratio with readings in the 40s. We have not seen consecutive readings that low since the first few days of June. You do remember the first few days of June, don’t you? I have boxed it off in blue on the chart.
Now of course in early June we were not oversold as we are now. We had just reached an intermediate-term overbought reading a few weeks prior. In early June the Russell 2000 was still enjoying the party whereas now it is down 5% in six weeks.
Yes I did draw in a support line of sorts on that chart. I have drawn it in before and now I highlight it once again because for the last three months, despite how terrible the small-caps have been, it has been bouncing off that line. If there is no bounce, even a small one, that’s a change in character. But hey, maybe it would get folks bearish, especially now that the broadening-out folks have decided we’re in a stock pickers’ market and tech is a good place to hide with interest rates here.
Speaking of interest rates, financial television spent a great deal of time on bonds Thursday so it’s finally gotten to the “concerned” level. And when they weren’t talking about bonds, they were talking about interest rates! I heard a few folks cite the rate of change (remember that phrase?). The Daily Sentiment Indicator chimed in at 10 for bonds and notes on Thursday. If only my mother would call and ask about interest rates we would have a trifecta!
Once again breadth was terrible and the number of stocks making new lows rose. If we add up the number of stocks making new lows on the NYSE and Nasdaq from Thursday that number would top 900. As a reminder, even when the market was supposedly broadening out we never had 900 new highs. That’s a lot of stocks making new lows. And they are not all directly interest rate related in the sense that they are not all bond funds or preferreds.
If you look at charts you would see that the majority of stocks do care about bonds. It’s just that the handful that don’t currently care about bonds are the ones that affect the major big-cap indexes the most. If those few start caring I suspect sentiment will move from complacent in a heartbeat.
