Why I'm Rooting for the Downside
We take a look at the indicators to see what's needed before we can have a real rally again.
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I think we are supposed to feel better about the market the last two days because the Russell had consecutive green days which is the first time in the month of June. But if that’s all the energy the small caps can muster, then it will be like pushing a boulder uphill.
However, I am going to say something positive now. For the last few days, I have noted that if we can come down into late June, then I think we can set up a rally for the others in July. You don’t need me to tell you how oversold they are getting. But I will anyway.
The 30-day moving average of the advance/decline line has been heading down for more than a month now. Just look at the way it tracks the Russell. Now notice that it has finally dipped under zero. The math says it should be oversold in early July. Can we get some more downside between now and then? To get it oversold enough?
The Volume Indicator is at 48%. It gets oversold under 47%. It only got to 48% in April but it did get to 47% in late January. If I had a chart of the Russell or the Equal Weight S&P you’d see the correlation is quite good. So a bit more downside into late June and this would be sufficiently oversold.
The issue I have is sentiment. It remains complacent. If I had a separate sentiment indicator for the small caps we’d probably see it was leaning bearishly.
The question is, do the mega-caps have to come down in order for the others to rally? I would like them to come down because they are index movers and taking the index down shakes things up. It scares people. It resets things.
And quite frankly since the majority seem convinced that these stocks can’t go down, it would be one of those things that caught the majority wrong.
With Nasdaq up seven straight days and only one of those days has had more new highs than new lows you don’t need me to tell you how much selling has taken place under the surface. That doesn’t lead to euphoria in the market, it leads to complacency.
So let‘s get the VIX jumpy, let’s get things shaken up. Just in time for the others to get oversold.
One final comment, on the Utes. No one talks about them anymore. At 950 there were bulls everywhere. Now it’s crickets. And recall I noted there was support at 900. I think I am early in warming up to them again but if I am correct about an oversold condition in July then the Utes ought to get oversold then too.
