Complacency Is No Longer the Case

 | Aug 11, 2017 | 6:00 AM EDT
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Was it just two weeks ago I highlighted the CNN Fear and Greed Index as showing complacency with a reading over 80%? As of today, it has collapsed to 31%. Clearly, complacency is no longer the case. Once this moves under 20%, I consider it extreme.

We know complacency is no longer the case because the equity put/call ratio zoomed up to 88%. Readings over 80% show concern and a level of fear in the market. Yet the total put/call ratio didn't even come close to 100%. The index put/call ratio was most shocking at 69%.

The 10-day moving average of the equity put/call ratio has pushed upward. I believe just a week ago I showed this chart here when it was near the bottom of the page, noting it was bearish. So the good news is that when this indicator peaks and rolls over, it becomes bullish. My estimation is that it will take several more days for that.

The VIX did get jumpy as well. In fact, that's where we saw the panic, in my opinion. People who have spent the last eight or nine months shorting volatility like it was money in the bank (because it was) were the ones who panicked, not stockholders.

If we'd seen panic in stocks, we would have seen the TRIN go over 1.0. It didn't; it ended the day at 0.99. That is not panic selling. If we'd seen panic selling, the down volume would have equaled 90% of the total volume. Instead it chimed in at 86%. Some might say I'm being picky, but to me it says there was not much panic selling.

There was, however, enough selling to make some measures oversold. Keep in mind we have been somewhat oversold for almost a week, but it hasn't helped the market much, has it? In any event, today we'll examine the chart of what it will take to turn the McClellan Summation Index from its current down to up. It will now take a net differential of +4,400 advancers minus decliners. Since approximately 3,000 issues trade each day, this means it would take at least two spectacular days of breadth, if not more, to halt the decline. That's what makes it extreme once it gets to +4,000.

Notice, though, that the push up and over 4,000 is typically not the low in the market. More often than not, the rally is short term and we retreat one more time.

Then there are the stocks at new lows. They increased on Thursday. If you're bullish, you want to see the number of stocks making new lows contract, not expand.

Finally, let's go back to the chart of the Russell 2000. As you know, it completed its head-and-shoulders top a few days ago when it broke 1400. There is a measured target near 1350, but the 200-day moving average line is just a few points away and it would be the first visit since the election. I would not be surprised to see a bounce, but I do not see any positive divergences that say this correction is done.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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