Rally Over or More Upside? Monday Will Be the Tell.
Does the selling keep going, or is this more like that early October whack?
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I think Monday’s action will tell us a lot about the nature of the market and whether or not it has changed.
We already know about some of the extremes we’ve seen. All those low readings in the put/call ratio, coupled with the high readings in the ISEE call/put ratios. We know about the Market Vane bulls, which topped 78 a couple of weeks ago. We know about the Citi Panic/Euphoria Model, which is well into Euphoria. We know about the way some tech stocks were trading, leaping 30% in a day. We know about the divergences between the tech stocks and, well, almost everything else.
We know about the McClellan Summation Index, which has been heading south since late April. We know about the breadth of the market, which has barely been able to top the mid-April high, which was barely able to top the February high.
We know about the lack of stocks making new highs. And we know about the increase in stocks making new lows. In fact, Nasdaq’s new lows came very close to clocking in at 300 on Friday.
So why will Monday tell us so much about the nature of the market? Because all those things listed above are problems for the market, and they did not develop over the course of a week but rather over the last two months. How many charts do you look at that are not technology stocks that have gotten over their February highs? How many do you see that are over their mid-April high? Not many.
There is an old saying that bottoms are made in a day, but tops form over time. Tops form when there is a series of lower highs (and lower lows). Take a look at my old friend XLB, an ETF to be long the materials sector. It peaked in February, and it has now had two failed attempts to get over that mid-April high. Yet, there are no lower lows. Not yet. Friday’s whack did not even take this to the mid-May low (where I would point out most tech stocks got to).
We are not oversold, having just reached an overbought reading midweek last week. I wouldn’t call the VIX jumpy by any stretch, but that DSI reading of 10 surely mattered because the VIX surged six points on Friday. The DSI for the VIX is now at 22, just to give you an idea of how much it moved, as the DSI rarely moves 12 points in a day.
Yet the put/call ratio on Friday pushed up to .97, the highest reading since early April. That tells me folks got a bit anxious on Friday. The volume in the QQQs came in just shy of 100 million shares on Friday. That is the highest since November (it came close in late February and early March, though). Those are signs that anxiety crept into the market on Friday.
Back to why Monday matters. Does the selling keep going, or is this more like that early October whack (blue arrow) on the chart of the QQQs? Saving the market is more of the same. If the selling accelerates, then something has changed.
