I noted yesterday that the Volatility Index call buyers had gotten quite aggressive as the put/call ratio for the VIX had come down to .12, the lowest reading since 2019. All week I have noted that the Daily Sentiment Indicator (DSI) for the VIX had gotten to 17 and any rally in stocks would send it too low into the danger zone.
Thursday's market action accommodated those VIX call buyers. But notice something: On Tuesday's 62 point tumble in the S&P 500, the VIX barely budged. But Thursday's similar tumble in the S&P saw the VIX surge.
I would not call it jumpy, yet but it could be on its way. Remember a year or so ago when everyone wanted the VIX to go to 40? We don't hear calls for that anymore. Perhaps they will show up again in the coming days.
The bad news is the banks have led the way to the downside. I have learned in my four decades of doing this that the banks are important to the market. I know the technology stock folks scoff at those boring banks, but the reality is that the banks are quite important. The best news I can offer is that there was some panic in them on Thursday. Just look at the volume in KRE (KRE) , an exchange-traded fund for the regional banks.
The black line should really be drawn quite lightly in pencil since the blue line is more important, just because it is flatter. Should we get a bounce in the banks, the resistance should be a place folks start selling again.
The number of stocks making new lows increased again. Nasdaq's jumped to a bit more than 300, while the New York Stock Exchange is now pushing up against 100. The Hi-Lo Indicator finally budged as it is now at .36.
The McClellan Summation Index is still heading down. It now requires a net differential of positive 4,000 advancers minus decliners on the NYSE to halt the decline, so this metric is now short-term oversold.
About a week or so ago sentiment had gotten quite bearish. I wrote about it several times. Then the market rallied late last week and the bulls came back. We saw that in the Investors Intelligence weekly survey earlier this week. What surprised me was that the American Association of Individual Investors saw the bulls edge up one to 24.8% and the bears fall four to 41.7%. The voting for this was open this week-remember Tuesday??-and still these folks did not get more bearish.
My intermediate-term overbought/oversold oscillator should reach an oversold condition in about a week or so. The key will be if it can get to a good oversold and can we get negative sentiment at the same time. If the sort of selling we saw on Thursday keeps up, I figure sentiment will be so bearish in a week that it'll be hard to find a bull. And maybe the VIX will be jumpy, too.