All week long I have noted that, if we could see some downside in the market, we'd likely see sentiment get pretty bearish. After all, folks got very bearish last week from just one down day. Yet it didn't even take more than a morning of downside for this to occur -- maybe because we've seen so much sideways action of late. The put-call ratio went above 100% Wednesday for the first time since July 20!
This doesn't mean it is now "up, up, and away," but it surely tells you how many folks want to be hedged or short heading into the Fed's Jackson Hole, Wyo., symposium this weekend.
If we go back to look at action on July 20, we can see it was a strong down day, with the S&P 500 falling by about 1%. It made sense for folks to be bearish, but the S&P closed up a smidge more than a point on Wednesday. So I surmise it's not about the day's action but, rather, the fear of what could be in front of us.
The interesting part of the chart above is that the S&P fell quite a bit in the next two days, only to rally hard and regain the loss and more. So, again, I would note this: Particularly if the market falls in the next day or so, I believe it will read as oversold enough for a short-term bounce next week.
However, please keep in mind that the indicators and the stock charts do not look the same now as they did then. The best example I can provide is in the chart of Market Vectors Oil Services ETF (OIH). I realize I have harped away about this group for a month now -- but consider that OIH, at $40, is exactly where it was a month ago. At this point, I am sure even the non-chart readers can see the rolling-over that has taken place in these last few weeks.
I have boxed off that late-July period, where I hope you can see how different the chart looked then vs. now. Currently we're seeing an uptrend line (in red) that broke just over a week ago, something we did not see in late July. This is not a huge top by any measure, but for the past month I heard a constant refrain about buying oil and oil-services stocks -- yet, for all that buying, there has been no lift. That tells me these names are likely over-owned.
Technically speaking, the small top will not be complete until it breaks that blue line. However, since prior support becomes resistance, a break of that blue line implies it will be resistance on any rally.