We don't get Realization Days often. And they don't usually mark the bottom or the top. But they do usually mark the point at which we finally see the sentiment shift in a meaningful way.
I think Wednesday was a Realization Day.
For weeks now, we have been discussing the terrible breadth. For weeks we have been discussing the stocks making new lows. For weeks breadth has gotten worse. For weeks the number of stocks making new lows has expanded almost daily. These are all signs of deterioration under the hood.
Today may be a Realization Day.— Helene Meisler (@hmeisler) December 1, 2021
The mega-cap stocks have been holding up the indexes and folks who just care about the big-cap indexes were scoffing, thinking the deterioration didn't matter. I think the realization on Wednesday was that a majority of stocks are down 20%-30% or more. The realization was that there has been a lot of rot under the surface. The realization was that Apple (AAPL) and a handful of other stocks are single handedly holding up the indexes and maybe that's not such a good thing.
And that has shifted the sentiment. In other words, for the first time in weeks I can't use the word complacent, when it comes to sentiment. I can't say that we have a whole lot of bearishness yet, but it finally feels like we're headed there. It's not quite panicky but it is no longer complacent.
The Investors Intelligence bulls fell 7 points to 49%. That's a step in the right direction, especially considering this reflects action through last Friday and none of what we've seen this week. The bears even notched up a bit. They are at 25%. There is nothing extreme there, but it is the highest reading since spring 2020. It's possible next week could see the bulls in the low 40s.
Wednesday's put/call ratio was .99. I'd still like to see a few readings over 1.0, but at least this is finally moving with four out of the last five days with readings over .90. The 10-day moving average is at .86 and it was .98 in September, which means there is still room for us to see real bearishness, but readings over .90 are how we get there.
In addition, we are even more oversold now. I decided to take the New York Stock Exchange Overbought/Oversold Oscillator back to spring 2020 to show you how oversold we are. It is similar with Nasdaq.
The more intermediate-term Hi-Lo Indicator for Nasdaq finally tagged 20%, but hasn't gone below it yet. I expect it to do so in the next few days.
The NYSE's Hi-Lo is now at 31%, which you can see is the lowest since the spring of 2020. That probably needs another week or so to get oversold.
One final point is that the number of stocks making new lows did not expand on Wednesday. Not on Nasdaq and not on the NYSE.
It's hard to imagine anyone will want to buy stocks after trying to do so and getting burned on Wednesday, but isn't it that sort of action that changes the sentiment? If we do rally on Thursday (I still think we should rally) no one will trust it. And that is part of the change in sentiment.