Monday morning I noted that the VIX had not gotten jumpy and downside volume was actually 2 to 1 on the upside which told me there was no panic selling. I also noted that the press did not seem terribly concerned. I highlighted a headline I'd seen on Sunday afternoon that said: Why Monday may offer a respite for stock-market investors after a bruising bond rout.
Here we are three trading days later and the first thing I want to do is share the afternoon headline from Wednesday with you: Nasdaq shows signs of technical breakdown, crashes below 200-day moving average as selling accelerates.
Not only that, the VIX has started to move and is getting jumpy. I always try and describe this very non-scientific indicator as noting that it ought to look like it is breaking out and if it were a stock you'd be dying to buy the breakout. You have to admit, that's what it's looking like now.
It took all day but the downside volume finally got to 90% of the total volume. So we did see the sort of selling that is panicky.
Then there is the McClellan Summation Index's "what if." The Summation Index now needs a net differential of +4,100 advancers minus decliners to halt the side it has been in all summer, but has accelerated since early September. At +4,000 it is extremely oversold.
On Monday I also noted that it would take Nadsaq longer to get oversold and I didn't expect it to get that way until early next week. The "what if" for Nasdaq's McClellan Summation Index, where I use volume instead of advancers and decliners, now requires a net differential of +4 billion shares. That's up minus down volume. As you can see on the chart, it is now into oversold territory as well using this metric.
The put/call ratios soared on Wednesday as well. The total put/call ratio was 122%. The ETF ratio was 251%. That's only happened three other times in 2018, and curiously never happened in the February slide. You can see on the chart that in May and August we rallied immediately. In the spring we rallied and came back down one more time.
I would still prefer to see the 10-day moving average of the put/call ratio higher but with readings such as we saw Wednesday, we are on our way.
The Fear and Greed Index from CNN slipped under 10. The Daily Sentiment Index (DSI) which was over 80 for the S&P three weeks ago is now at 28. That's a big change in sentiment as well.
The Hil-Lo Index tagged 15%. Under it and it is into oversold territory.
The Nasdaq Momentum Index, discussed here yesterday in great detail, still shows a window for an oversold reading between Thursday and Tuesday so it remains hard to pin down but as you can see, we are lining up for an oversold rally as we move into that time frame since other indicators are moving toward oversold as well.
