Investor Sentiment Sours on Tech Stocks
The pros start to turn bearish just as the big cap tech stocks reach oversold. Are retail traders far behind?
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The Market
The Either/Or Market is still with us. I believe the situation we have this coming week is that we get to a spot where the others are overbought (well, they are already short-term overbought) and the narrow ones—can we even call them the Mag 7 anymore?– are oversold. But before we get to that, perhaps the real question is if overall sentiment has shifted. I think it has shifted, but only on a minor level. There is no real fear or panic.
The NAAIM folks have reigned in their exposure to 74. They got to 72 in late September just before the others started to rally, but prior to that they were on margin in late August. So you can see the change in sentiment (and this was prior to Friday’s decline), but my sense is these folks are more Mag 7 types than overall market types, so the sentiment shift likely reflects the decline in tech-land.
But alas, that is the only sentiment indicator I have that has shown any shift. The AAII folks are not bearish. The II folks are not bearish. The Market Vane and Consensus Inc. bulls are still quite bullish. The put/call ratios show no fear.
There is anecdotal evidence that the fundamental folks are pulling in their horns. A few strategist-types have lowered their targets for the S&P. Some have even downgraded stocks. The VIX is desperately trying to get jumpy.
On Friday, the volume in the QQQs topped 60 million shares for the first time in months. Long time readers know that I view high volume declines in the QQQs as a positive, or at least a sign we’re close to a rally. I would prefer 90-100 million shares but 60 million is a good sign in the short term.
The SOX is now at an eight-day losing streak, which makes it short-term oversold. And then there is the Nasdaq Momentum Indicator. What I do here is plug in lower closes for Nasdaq over the next week or more to see the point in time when the indicator goes up even if price goes down. Sometime between Tuesday and Monday (sorry for the wide range, but math is math), Nasdaq gets oversold. Remember that this is not meant to find the exact day, just the general time frame.
My own Overbought/Oversold Oscillator for Nasdaq gets oversold on Tuesday. And Friday’s big decline in Nasdaq saw the number of stocks making new lows contract. Last Wednesday saw 696—let’s call it nearly 700 new lows on Nasdaq. Thursday, when we made a lower low, there were 535 new lows. And Friday there were 453 new lows. Down below, you will see that the Nasdaq Hi-Lo Indicator has finally inched its way to .19. Under .19 and it finally gets oversold. It ought to get there this week, perhaps even Monday.
Overall, I continue to favor the others over the big cap tech, but my sense is that by midweek this week we see the big cap tech stocks rally. Just remember, until we get sentiment bearish, I think it’s hard to get rallies that go anywhere special. The S&P is where it was in early August and not much higher than where it was in mid-May.
New Ideas
TLT got to my initial resistance target of 80 last Thursday. It has also been green for seven straight days. I am still a fan of bonds, but it is not going to be easy for TLT to eat through this resistance. We should see more fits and starts and pullbacks now.
Today’s Indicator
The Nasdaq Hi-Lo Indicator is discussed in full above.
Q&A/Reader’s Feedback
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There is an overriding theme here: a lot of stocks that are at/near new lows and oversold, having been in major declines. Unless/until I see a proper change in sentiment, bounces are doable/likely but probably not sustainable.
Archer Aviation (ACHR) is oversold enough to bounce, but if it cannot lift itself up and over 4.50 in the next week or so I’d say the bounce will be very short-lived.
T1 Energy (TE) is yet another stock that is oversold and has some minor support from last November’s low. If it can get to 3.50, I’d take some money off the table.
Ondas (ONDS) is somewhat oversold. If it cannot rally up and over 6.50 soon, I’d fret because it looks like a stock in a downtrend.
Pure Cycle Technologies (PCT) is yet another oversold stock, having halved in a month. I would be shocked if it can rally all the way back to resistance at 5, but it really ought to bounce.
I expected Whirlpool (WHR) to look better than it does since I put it in a similar category as Sherwin Williams (housing related) and SHW is at least not making new lows anymore. That having been said, WHR is oversold. A quick plunge to 25 that then reverses quickly would make me feel as though it has put in a short-term low. Otherwise we’re looking at just a bounce.
McCormick (MKC) is already exhibiting an oversold bounce. I suspect that bounce finds resistance in the 48-49 area on the first trip up there. But notice the way the stock plunged to 44 and reversed enough to catch a ten percent trade. That’s what I mean above when I reference a plunge near 25 would help WHR set up for a trade.
AST Space Mobile (ASTS) looks like an oversold chart (the lower line offers some support), but it also looks like a fresh break a week or so ago when it broke 55. A rally into the 50-55 area, should it come, would be a gift.
Unless Rocket Lab (RKLB) can leap up and over 60, leaving the last two days as an island, this looks like a fresh break. I’d sell rallies back to 60-65 unless it’s a rally that gaps up and over 60.
That is a fresh break for Dell Technologies (DELL), having cracked under the uptrend line that has been in place since March. Short term, there is decent support in that 425 area, so I would expect a bounce, but if the stock can get back to 500-525-ish, I’d view it as a gift to get out.
Finally, a different-looking chart! Take-Two Interactive (TTWO) is possibly trying to make a bottom of some sort. I’d like to see it stay over that spike low (around 196) in the coming days and get over that very short-term downtrend line I’ve drawn in. It still has a lot of resistance all the way up, but if it is to make a bottom, it has to start somewhere. If it can do that, then I put this on the ‘tax loss rally candidate’ list.
Medtronic (MDT) is the perfect example of an ‘other’ that has gotten short-term overbought. I’d love to see it hold 92 on this pullback. It’s going to take some work to chew through all that resistance up to 100 now. If it falls back under 92 then I will view last week’s action negatively.
