3 Reasons for the Market's Sudden Change of Heart

 | Aug 01, 2017 | 6:00 AM EDT
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How did we go from giddy last week to cautious talk this week? Think about it, just last week the Fear & Greed indicator was over 80 and now it's at 70. In that same time the S&P 500 moved a mere seven points. So what changed minds?

I can venture a guess. I'll begin with the fact that the S&P 500 pushed to 2477, a new high and then immediately gave it back. Oh, it's not like seven points is a big deal but there was no follow-through. Of course the 3% one-day decline in the Transports didn't help either.

But then what I think is the real reason happened: the FANG stocks faltered.

Alphabet (GOOGL) was the first to gap down. Facebook (FB) held up well but hasn't made any/much progress since its earnings report. Amazon (AMZN) disappointed, too. And in case you haven't noticed Tesla (TSLA) hasn't been able to get out of its own way; it is trading at the same price it was in early May, which makes it three months of nothing. Well it does have a head-and-shoulders top formation, but we're talking price, not patterns now!

As if all of this wasn't enough, the number of stocks making new lows on Nasdaq is knocking on the door of how many new lows there were in early July when the Nasdaq was 5% lower. That's a lot of "not winning" for an index that is up so much.

Meanwhile, the Russell 2000 has now gone red for four consecutive days, its longest losing streak since March. I've drawn in this red line for you a number of times -- it continues to keep a lid on rallies. The black line is new, however. Since the May low it has been touched three or four times, depending on how you want to count it. It's a good line. It also brings the Russell back to the top of support.

A break of this line obviously changes the pattern that has been in place for two months. But what about a save off this line? I think the best a save can do is tag that red line again.

My inclination is that we will see a rally midweek only because it's the beginning of a new month, which typically has an upward bias for at least one day. Also that low put/call ratio on the VIX from Friday would indicate we should have an up day. Also, by some measures, we're going to be a little bit oversold by then. You can see the Overbought/Oversold Oscillator for the Nasdaq has already dipped under the zero line.

Still, my inclination is also that as soon as we relieve that little oversold condition we'll be back to overbought in a hurry.

Alphabet and Facebook are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells GOOGL and FB? Learn more now.

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