A Shift in Sentiment, but Without Enthusiasm
As the market shifts from trending to rollercoaster, we wonder if the Mag-7 is to blame. Also, we'll look at AMSC, MU, BA, QQQ.
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The Market
I believe sentiment has shifted in the last two weeks but I don’t believe it is full of the same enthusiasm we saw a few months ago, back in July. In July every sentiment indicator was extreme and now they are just rocking back and forth between too bearish and too bullish.
But consider that in the last few months (since July) we have had a rollercoaster market. There has been an awful lot of ups and downs. We went from exuberant in July to dread in early August to happy in late August and back to despair in early September. Now I would say we’re back to happy.
If we use the ten-day moving average of the equity put/call ratio as a guide you can see the rising and falling. That big low in mid-July (too much enthusiasm) the big high (too much despair) in early August followed by the happiness in late August, the fear in early September and look at the current reading: back toward where it was in late August. It’s been quite an emotional market.
Notice how From April until July there was a long (multi-week) swing from ‘bearish’ in April to ‘bullish’ in late May which was followed by a quick swing up and another multi-week decline into July. But now, it’s every few weeks.
Perhaps the enthusiasm level that we saw in July will be hard to achieve if the Mag 7/index movers aren’t doing all the heavy lifting. After all folks have gotten so used to them being the only game in town that they aren’t sure what to think when NVDA is not up a few percentage points a day.
If we look at the Citi Panic/Euphoria Model we can see the big peak in Euphoria in July but since we fell out of Euphoria in August, we have not recaptured it.
As far as being overbought, we are definitely there now. You can see it on the chart of my Overbought/Oversold Oscillator clearly now.
As we head into the final week of the quarter—a quarter which you can see has seen more ups and downs than folks are used to we are overbought with sentiment leaning too bullish. The DSI for the VIX didn’t budge on Friday so it remains at 16. I still believe we are due for a bout of volatility. If we get it I will be interested to see if—how fast—sentiment shifts now that the Fed has eased.
New Ideas
With the market this overbought I hesitate to buy a speculative stock such as American Superconductor AMSC but it has done exactly what I like to see: shoot up then correct gently over the last two weeks. A move back under 20 and I am wrong.
Today’s Indicator
We’ve discussed the new highs quite a bit in the last week or so which is why it is now time to focus on new lows. If we do get the correction I envision, that’s where our focus should turn. Friday saw a decent uptick in new lows for Nasdaq. It tends to be ‘tax loss selling season’ as we head into October so we’ll monitor this data closely.
Q&A/Reader’s Feedback
Micron MU looks to me like it’s trying to bottom so I am a fan. However, it is important to note that this stock has earnings on Wednesday so it’s a gamble in that respect. I did however like that about a week or so ago the stock was downgraded and couldn’t really break 85.
Boeing BA has offered a few trading opportunities this year but all within the context of a downtrend. It doesn’t appear to have changed that trend. It should have another rally once we get back to an oversold condition but talk about candidates for tax loss selling. I can measure a longer term target in the 135-ish area.
I had a strong view on the QQQs QQQ in early September near the lows and we’ve had a nice rally. In the very short term they filled the Thursday gap up on Friday so that’s bullish but there is a lot of resistance in that 490 area now. With the market overbought I’d like to see if they can hold their gains into a correction. It’s possible we see a sideways digestion now. It’s far away but under 470 and this chart starts to look dicey.
The one thing I have noticed is that when sentiment turns sour on them it’s been the best time to pile in. (see early August and early September). Now I think sentiment on the mega cap tech names is more mixed.
