The Best Rallies Take Place When Investors Are Bearish, Not Complacent
Perhaps we’ll get a change in direction following the Fed’s press conference tomorrow. Until then, this market feels complacent, which is not productive.
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The Market
It was another slow day of dripping in the market. The S&P broke under 7600 grudgingly. So that means nothing has changed. Perhaps tomorrow we’ll get a lively market with the Fed meeting on tap.
We’ve still got an oversold condition. We’ve still got complacency. There is a chance we can get a minor change in complacency tomorrow. The Investors’ Intelligence survey, which you may recall saw the bull/bear ratio get to 3.88 in early August, will be released tomorrow. A serious change in sentiment would be if the bull/bear ratio fell to 1.0 or even under that! I do not expect that to happen.
Yet last week, the bulls were already down to 50%. Thus, it would not surprise me if this fell even more. A reading in the 40s would not signal fear, but it would tell me folks are not as complacent as they have been.
In late July, the bulls got to 49% (of course, the put/call ratio had soared in late July, too, which is not the case currently). At the spring lows, the bulls got to 33%. And that signaled fear to me. But at least we could see some movement.
Since so many have taken issue with the number of stocks making new lows on the NYSE due to all the bond funds/interest rate sensitive names there, I thought today we’d look at Nasdaq’s Hi-Lo Indicator just to show you it’s not just the bond funds taking this indicator down.
Nasdaq’s Hi-Lo is now at .23. Under .19, and it is oversold. It got to .17 at the spring low.
I will stand by my view that the market continues to feel complacent to me, and the best rallies arrive when we are oversold, and sentiment is bearish.
New Ideas
I am not a fan of the Homebuilders (ITB), but the move in rates in the last week has not taken these stocks down anymore. That might change with tomorrow’s announcement, but I would put this on your screen and watch it.
And I would put IWM on my watchlist. Again, not a fan of the chart (it’s an ‘other’), but it is now down seven percent and sitting at some minor support. If the Fed hikes and these can’t make lower lows, that would be of interest to me.
Today’s Indicator
The McClellan Summation Index is still heading down. It needs a net differential of +2600 advancers minus decliners on the NYSE to halt the decline. An oversold reading from this indicator would be if that number got to +4000 or greater.
Q&A/Reader’s Feedback
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My call to buy the Utilities (XLU) has been dead wrong. Terrible. I really kept thinking they would hold and rally, and I have been wrong. XLU is oversold and really ought to bounce, but if it cannot get up and over 42, that would be bearish.
United Rentals (URI) has some good support here. In that respect, the risk/reward is decent because a break of 960, and you know you are wrong (in the short term). I have a lot of charts like this, though that should rally—a few months ago would have rallied—and they haven’t. So, breaking these twin lows around 970 would be your stop. Under 960 if you want to give it leeway.
The breakdown in Cava (CAVA) is bearish. It should have rallied from 55 to 60 just to relieve the oversold-ness, and all it did was take a few days to rest before heading down again. It’s got support in this 45-47 area, but that is the best I can say about it.
Linde (LIN) broke support at 470 and is now just sitting here. My inclination is to think it goes lower from here, but I’ll consider myself wrong if it recaptures 470 in a hurry.
