Are Complacent Investors Setting the Market Up for a Fast and Furious Decline?
The market is down, but investors aren’t scared. Does that mean there’s more downside to come?
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The Market
There is nothing fast and furious about this decline. There is nothing panicky. There is a lot of complacency. For example, the VIX is still at 16.
Another example is the downside volume for Nasdaq today was 52%. Does that sound like folks are selling like they mean it? It doesn’t to me.
On the sentiment front, the NAAIM folks have moved their weekly data for their exposure to the market to a subscription. I have not yet decided whether I will subscribe, but it turns out someone else has, and he kindly shared it with me. Due to that, there is no chart I can show you, but I can report that their exposure to the market is at 94. That is on the high end. That is the area we have often seen pullbacks in the market from. That is also a high level of complacency.
In addition, I did not mention it yesterday, but the Investors’ Intelligence bulls and bears barely budged. The bulls are 54.7%, and the bears are 15.1%. That puts the ratio at 3.62, so even though there was a minor shuffle down in bulls and up in bears, the ratio remains high.
Sticking with sentiment, the ISEE call/put ratio for equities soared today to 2.89. That is the highest since June 2nd, which was a high in the market. It was also this high in mid-May, which you may recall was when we got overbought on an intermediate-term basis. Prior to that, it got this high in late January. In other words, such a high ratio has not been bullish as it shows too many calls being bought.
Then, of course, there are the banks. I still don’t see anyone fussing enough over them. The Bank Index is now down on the month and trading where it was nearly two months ago. It still has not made a lower low, but it did break the short-term uptrend line and did close under its 50-day moving average for the first time since April. There is a little support in this area, but I am still cautious on the banks.
Overall, many of the major indexes are not far above their 50 DMA’s so we could see an attempt to hold on Friday. I just don’t think this decline is done yet. I need to see us oversold first, and the earliest I see that is still another week away.
New Ideas
I am going back to the chart of TLT yet again because it did not get through the line and gave back a fair amount of the rally. Yet I think that 81.50-82 area ought to hold on this trip down.
Today’s Indicator
The ten-day moving average of the put/call ratio remains at the bottom of the page. Perhaps it will be higher by the time we get oversold. This is another indication of the complacency out there.
Q&A/Reader’s Feedback
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I recommended Amgen (AMGN) back in May/June, and it has had a terrific run. That base it broke out of measures into the 440-450 area, which is where it got yesterday. It hasn’t done a thing wrong, but booking a few profits after a 30% run is never a bad idea.
Bristol Myers (BMY) is another name I liked in the drug group several months back. But now that potential double top at 68—on spikes—says to me the stock is vulnerable to a decent pullback. I’d take something off the table. If you prefer to wait and see if it breaks under 63, that would be my stop.
LightPath Technologies (LPTH) is a tough call here because the stock hasn’t done anything all year. If it can make a higher low (let’s say filling that gap at 11 and going no lower), then I would get interested, especially if the market is back to an oversold condition by then. If the stock goes all the way back to 9, I would not be nearly as interested in buying it.
Some day Teva (TEVA) will break out and be terrific, but if it cracks back under 36, I would say that time is out in the distance.
For now, I am of the mind that Micron (MU) is going to be bought on pullbacks. But if the next rally can’t get up and over last week’s high at 1025, I will begin to fret over the chart. I would prefer it does not break under that 850 area.
