Investor Sentiment Sends an Overt Warning About the Stock Market
The Market
You know that old joke: you want the good news first or the bad news first?
Here’s the good news: I think the action the last two days of the week last week in tech stocks (Nasdaq) changed quite a few minds.
Here’s the bad news: I don’t have any actual data to prove my anecdotal evidence.
Oh sure, I can point to the fact that the QQQs broke 700 and the volume finally surged (to 84 million shares). That is good news. Because it means folks finally decided it’s okay to sell (Remember everyone wanted the ‘clearing event’? Of course, they only want it after the fact, not during).
Or I can point to the fact that the SOX actually—gasp!—outperformed on Friday despite the Intel move. It’s by a smidge, but it is now on my radar.
But the put/call ratio at .90 implies a smidge more anxiety than we have seen. But puts are still not swamping calls. To put that in perspective, in late July the put/call ratio got to 1.05. Even in early June it reached up to .96. In early June the QQQs had back-to-back days with 90 million-plus shares traded. In late July, the SMH had record volume.
And if we use the Sentiment Cycle chart that I shared with you last week, you can see we’re in the middle of nowhere. I said last week it is possible we were at Subtle Warning. This week we’re at Overt Warning.
But I am not going to base my entire market view on this one chart. If we get what the data says is real bearishness, not anecdotal, then I would gladly ditch the chart comparison, but I need some data, not vibes.
Does that mean we can’t rally Monday? Of course we can. Nasdaq is close to its 200 DMA (as are the QQQs). Perhaps it was that late-day rally that has folks not panicky. My view is always markets that get saved don’t give us that ‘clearing event’ that gives the best setup for a trade.
One final point I would make is that the number of stocks making new lows on Nasdaq did not come close to 700 (the peak reading thus far) and that I view as a plus.
But what about the others that held up so well late last week? They are short-term overbought now; they could use a pullback/shakeout/rest.
New Ideas
Several of you have asked about $GLD, and I have been waiting for the DSI to get to single digits. It is not quite there, as Friday’s reading was 13 on that break of 360. It’s on my radar for this coming week; should we see that reading slip under 10 (or even hit 10), I would look for a trade in GLD.
Today’s Indicator
The Hi-Lo Indicator for Nasdaq is oversold.
Q&A/Reader’s Feedback
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United Parcel Service ($UPS) ought to fill that gap overhead. In the near term, it is seriously overbought, having run up in a straight line from 92. I’d like to see it pull back toward 106-ish and then make a run up to fill that gap.
Boyd Gaming ($BYD) met its downside target when it tagged 65 in late September. At 72, I’m not quite sure if it makes one final fling toward resistance at 76-ish or comes back down to test that mid-60s area. A push back down and I’d put this on the list of year-end rally candidates. A push up to resistance and I’d be a seller.
Alphabet ($GOOGL) has some decent support in the 270-275 area. If we use a three-day rule (after a gap down, we give the stock three days to settle), I would say it is due for a short-term bounce. But it is going to take more than that to get me interested in more than a bounce right now.
Part of me likes the way Amazon ($AMZN) bounced right off that support line. Part of me thinks by doing so, it keeps the hope alive. That having been said, I think that 245-250 area is resistance on the first trip up. If it can bounce over 255, I would give the stock a lot of credit. If I felt we had true panic, I’d love this chart.
About two weeks ago, I turned a bit more cautious on Microsoft ($MSFT), around 530. At the time, I wanted to do a little bit of profit-taking but said unless/until the stock breaks 500-ish, I would stick with it. I still feel that way. I mean, we could lower that number to 480 to give it a bit of room, but it won’t change my general sentiment on the stock.
My old friend Air Products ($APD) has had a terrific run and appears to have broken out—just before earnings this coming week. The stock trades so thinly, so I’m inclined to take a little something off the table before earnings and then use a stop under 305-ish on the rest.
