The Selling Isn’t the Story Yet
The Market
There is a lot to cover because now we have the RSP down five percent in three weeks. Now we have the Midcaps down 5%. And the chatter is just now beginning—it’s still early days—to change. Right now, I only hear it in the chatter, not in the data.
We are oversold. We are not grossly oversold, and we are not intermediate-term oversold. But when breadth has been negative for seven of the last ten trading days, we’re oversold. It’s easy to see on my chart of the Overbought/Oversold Oscillator.
We have the number of stocks making new lows soaring. The NYSE had 350, while Nasdaq had 420. Gosh, if we had had those sorts of numbers of new highs when all that broadening out talk was happening, I would not have scoffed as loudly at that broadening out nonsense as I did.
In any event, new lows have now more than tripled in a week.
The Hi-Lo Indicator for the NYSE is at .27. That is the lowest reading in almost a year. A reading under .15 makes this (intermediate term) oversold. The chart will appear on Sunday.
But you know what? There was very little selling in stocks today. Downside volume on the NYSE yesterday was 76%. Today it was 63%.
All that talk about oil? Oil stocks were mostly red on the day. The DSI remains at 91. All that talk about oil? The Transports, which have been—like so much else—leaking lower, were barely down today.
What I get from sentiment is that folks are not hugely concerned. Right now, there is minor concern, and many who think, aw heck, it’s a typical weak September action. If folks were concerned, truly concerned, the ten-day moving average of the put/call ratio would not be sitting near the bottom of the page. The chart is shown below.
Finally, there are the bonds. I have not yet heard anyone say we must be concerned because of the rate of change, but I have heard plenty of folks say the yield on the ten-year is going over 5%. That happens on the day we finally got a DSI on bonds at 9.
The same way it is hard for me to like oil when the DSI goes over 90, it is hard for me to hate bonds when the DSI gets to 9. And hey, the Utes did not make a lower low.
The best rallies in stocks come when sentiment is bearish, and we’re oversold. We’ve got the short-term oversold condition, but we do not have bearish sentiment. I still think we’ll bounce, but I would not get too comfortable.
New Ideas
I recommended First Solar ($FSLR) last week, and it popped and came right back down. But notice the reversal today. The risk/reward is good because the stop is under today’s low.
Today’s Indicator
The ten-day moving average of the put/call ratio is discussed in full above.
Q&A/Reader’s Feedback
Hershey ($HSY) has some decent support down here, and it is clearly oversold. I’m not positive that anyone is interested in buying staples or food stocks right now. I would obviously use a stop under that line, or alternatively, put it on my radar for when the market has finally gotten to a good oversold condition, coupled with bearish sentiment. It should be on a watchlist.
You can see the support down here on the Clorox ($CLX) chart, but that’s the best I can offer: it’s oversold and at support.
Kimberly-Clark ($KMB) is yet another staple that is at support, or the top of support. That gap from a few days ago is bothersome, but I suspect it rallies next week, perhaps, as much as to fill the gap, but that’s the best I see right now.
We’ve looked at TJX ($TJX) several times in the last month, and I’ve not been a fan any of those times. I am still not interested in bottom fishing. Is it oversold? It is. Should it bounce? It should. So, a bounce now, perhaps a retest of that uptrend line on the weekly chart later in the year to set up a good risk/reward for a tax loss selling candidate.
Cenovus Energy ($CVE) has a measured target in the 35-40 area, so it’s close to the target area. I don’t love energy here, so I’ll just say as long as it holds that uptrend line (32-ish), it is okay.
