Yes, We Are Oversold. But We Are Also Complacent.
The problem is that people just don’t think the market can fall more than 5-10%. Which means that it can.
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The Market
Do you sense any change in sentiment? I say no.
The most I see is that folks feel like we’re due a 5-10% correction, but once that is over, it will be okay to buy. That is complacency to me. I continue to see it in the options ratios and even in this week’s Investors Intelligence report.
The bulls lifted to 51.9%, and the bears fell to 15.4%. The shift was minimal (bulls +3, bears down one), but I am struck by the bear number. Folks truly believe the market can’t go down more than five, maybe ten percent.
Perhaps that is true, but I have a pile of stocks that are down 10-20% already. Some more than that. So the S&P holds up, but the underlying stocks do not. Just look at the breadth of the market. It made a lower low than mid-May today.
Or what about the fact that the market is oversold and cannot rally more than a handful of stocks?
Or the fact that Nasdaq—not the NYSE—not yet at least—saw an increase in stocks making new lows today. Might I remind you that the Nasdaq Composite is at its high, and we have more than 400 stocks making new 52-week lows, that’s similar to what we saw a week ago when Nasdaq was much lower.
And we are oversold. The NYSE Hi-Lo Indicator is at .15. Under .15, and it is considered oversold. It’s not very common that we see such a divergence like that, the indicator down so much, and the S&P so high. Many will cite 1999 or 1973 (they would be correct), but I think we need not go back that far. In early 2025, this indicator got to .16, lifted (as did the S&P), and then came the Tariff Tantrum that took the market down nearly 20% in a heartbeat.
Or take a gander at early 2022 when it got to under .15, we rallied and then came down again, with a much more durable low that summer/fall.
Down below, you will see the Volume Indicator. It has fallen even more and now resides at 46%. Again, we don’t often see it fall like this with the S&P at its highs. Yet again, in early 2025, that is exactly what we saw –twice. You can see on the chart the S&P rallied, but the new high was marginal. We still required an old-fashioned whack, something to change the sentiment.
Many will want to cite today’s statistics as poor (they would not be wrong), but mostly the selling was more like drip, drip, drip than anything else. And when we consider how the bonds sold off, I would once again tell you we are oversold with complacency.
The DSI on the bonds fell to 12, but the DSI on notes fell to 10.
New Ideas
I recommended Caterpillar (CAT) a few days ago, and it hasn’t done a thing. It is trapped between 775 and 825. If it cannot get itself up and over 825 in the next week, I will give up on it.
Today’s Indicator
The Volume Indicator is discussed in full above.
Q&A/Reader’s Feedback
A few months ago, I thought Wynn Resorts (WYNN) was worth a shot near the low end of that range. It rallied and then died, and the death was a literally straight line down 20%. There is a measured target in the mid 70s, but the best I can say is it is oversold. Perhaps as we get into year-end, this will be another tax loss candidate.
Wheaton Precious Metals (WPM) has support around 143-145, although my confidence that it will hold is not high. If it holds, then that would be great. If you want to buy it, then respect a lower low.
Newmont (NEM) looks different than WPM because there is a lot of support in this 120 area so the risk/reward seems decent to me. Under 120 and you’re wrong to take a stab.
QXO remains in the channel I drew in last time we looked at it. There is resistance around 13 (blue line), but mostly I’d respect that channel, selling the upper end and buying the lower end until that changes.
Uber (UBER) continues to look like a big trading range to me, where we buy the lower end (66-68) and sell the upper end (78-80). And if we get a break of either end, we go with it.
