Some of the Bulls Are Having a Change of Heart
Price action over the last two days has relieved some of the bullishness.
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The Market
We know we’re oversold, and today’s action did not relieve that. Today’s action did change one thing, though: it eased some of that bullishness that had built up.
How do I know? Because for the first time since just prior to the election the put/call ratio went over 1 (to 1.05). That is a change. In fact, please do take a look below at the ten-day moving average of this indicator; it has turned up for the first time in weeks.
Keep in mind, sentiment tends to take a while to change. Folks rarely go from bull to bear, but rather, they fence sit first. What I see is some bulls staying put, but many are now closer to the fence.
Elsewhere, the Momentum Indicator for the Russell can finally show us something. Here, I walk the index down about a hundred points over the next week or so to see the point where the price keeps going down, but the indicator heads up. It should surprise no one that it turns up the day before Christmas. Remember that the Santa Rally tends to begin a couple of days before Christmas.
However, keep in mind that the day is rarely the exact date. What it should do is give us a general time frame to look for an oversold rally. So basically it confirms what I have been saying. Note that Nasdaq’s doesn’t get oversold until the 29th but that’s because Nasdaq is much further behind the Russell in terms of getting oversold.
This weekend I will go through all the intermediate term indicators which are finally on the move. For example we looked at the Volume Indicator last night (it was 47%) which is now at 46%. It is pushing into oversold territory.
The number of stocks making new lows increased today (not bullish) but the Hi-Lo Indicator for Nasdaq has moved to .45. It should get under .40 tomorrow. It gets oversold under .20.
Finally, let’s talk about the bonds which are truly awful. Yet the DSI is at 9 now. And CNBC did a segment on buying put spreads on the TLT. This is the sort of stuff we didn’t see when TLT was 94. Lastly, the DSI for the Dollar Index is at 89.
I really do think we’re going to have that Santa Rally.
New Ideas
I’ve got my eye on Kimberly Clark KMB because it hasn’t made a lower low in nearly two weeks. The Utes were green today, so if we can get the staples to rally, then bonds should follow.
Today’s Indicator
The ten-day moving average of the put/call ratio is discussed above.
Q&A/Reader’s Feedback
Amgen AMGN had a nice reversal today. It’s been a terrible stock but if you are going to bottom fish something that could have a rally in the new year, drugs and biotechs are quite hated so a stock that reverses like this has my interest.
Micron MU could have been worse with those earnings in that it could have broken the August and September lows, but that’s the best I can say about it. Very few stocks have seen a gap down, and that’s that. Mostly they have attempted to stabilize before seeing more selling.
The head and shoulders top in ITB, an etf to be long home builders, measures to 100-ish which is where it fills the July gap. With the DSI for bonds so low, we should expect a bounce soon but that’s all I see for now.
