I know, I said I thought if we were up early in the week, we'd go back down later in the week, and we'd end up with chop. But this was a lot more violence than I thought we'd see -- but it is still up/down action. Let's check in on the statistics and indicators.
Since the sell off came so late in the day, we often see where the internals do not have time to play catch up. Since breadth was positive by two-to-one, it ended the day with a mere -700, which for a day the S&P lost 47 points is not terrible. It also wasn't enough to turn the McClellan Summation Index back down. Not yet. That would require a net negative advance/decline line of -1,200.
Nasdaq's net volume is even more interesting, because it was negative by about 60 million shares, which is basically flat, so that's impressive considering Nasdaq was down 1.5%. So we'll keep an eye on breadth to see how it shapes up in the coming days.
We'll also keep an eye on the number of stocks making new lows, because they did not expand during the Tuesday decline. That could change, because we are into tax loss selling season, so the stocks that are down so much already, like energy, can begin to fall again.
What we also need to watch is sentiment. We need to see if it gets too bearish in a decline. We saw the Investors Intelligence bears rise last week to 21.5%, so even if this week's reading backs off a bit, it's easy to see how a decline from here would send the bears upward in a hurry. It would also send the bulls down in a hurry. If the market declines from here, we're apt to see the Investors Intelligence bulls fall under 50% quickly and readings in the 40s start to get me interested on the sentiment front. Especially if the put/call ratio can rise in a serious fashion.
We saw bonds reverse from that level on yields that has been resistance for so long. The blue line remains key to me, since I think that is now support. I noted Tuesday that I don't think yields are getting over that June high right now, anyway, even if they breakout over that black line. A shakeout is good.
Now let's move on to gold. I have said I want to see the SPDR Gold Shares fund (GLD) come down to the low $170s. That line on the chart would be a gap-fill, and would be where that big summer rally lifted off from. Currently the Daily Sentiment Index (DSI) for gold is 30.
It's not hard to imagine that a drop to the low $170s would take that DSI to a low reading in a hurry. And too many bears (a low DSI reading) is a reason to get bullish.