What was it about Tuesday that got folks so concerned? No, we did not see it in any of the sentiment statistics, but all day long I saw folks writing about it and on television there was plenty of chatter on the subject of a declining market.
Perhaps it was because a glance at the S&P 500 chart tells them the index is the same price it was a month ago. Folks tend to find that shocking when they are so used to it going up two points a day every day. Remember the guy I noted last week who said going up two or three points a day every day was bullish?
Perhaps it is because that uptrend line tried to break (black line). Perhaps it was because the red line (2565) has been tested (and held) for the third time in three weeks.
Or perhaps it was because the number of stocks making new lows on the NYSE jumped to near 130.
Or maybe it was because the percentage of stocks trading over their 50-day moving average lines is kissing 50%, where it was 60% a week ago and 80% a month ago.
Or was it because the High-Yield Bond ETF (JNK) , for being long junk bonds, is retesting that uptrend line again?
Or maybe it's because they finally realized what the McClellan Summation Index has been telling us for a month -- that the majority of stocks are trending down, not up.
Whatever it was, the chatter is rising. I don't yet see it in the sentiment statistics. For example, I am quite disappointed that the Investors Intelligence bulls went down one little-bitty point to 63.5% after last week's action. I surely thought they'd be under 60% this week.
What all of this does is send the market on its way to an oversold condition. For example, the McClellan Summation Index now requires a net differential of +2,500 advancers minus decliners to halt the decline. Typically when it gets to +4,000 I consider the market oversold. Therefore a few more days of poor breadth like this and it will probably get there.
I realize these days everyone cares about RSI and not my Overbought/Oversold Oscillator, which is the 10-day moving average of the net of the advance/decline line, but as you can see, momentum has been leaking out of the market for weeks. This is heading toward an oversold condition as well.
A few more days down would get the market to an oversold condition. I also think -- as I have all week -- that a break of that support on the S&P 500 chart would likely get sentiment much more concerned than we've seen. An oversold market with bearish sentiment is bullish. An oversold market with complacent sentiment is only an oversold market.
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