By now we all know the statistics. We know there are some intermediate-term indicators, such as the Hi-Lo Indicator, that are oversold. When an indicator is at .03, it doesn't get much lower than that.
We also know the sentiment indicators have gotten extreme. The Daily Sentiment Index (DSI) doesn't get to single digits for both the S&P and Nasdaq if sentiment is not sour.
Yet, almost everyone who comes on television knows we should have an oversold rally first. Is that why the market is not accommodating it?
I grant you my own Oscillator is not grossly oversold. It will be if the market can string together a few more days of negative breadth. The Nasdaq Momentum Indicator is not oversold, either. But it will be early next week, provided we can get a few more down days.
The McClellan Summation Index is heading down. When I calculate what it will take to halt the decline, I come up with a net differential of positive 3,300 advancers minus decliners on the New York Stock Exchange. That's oversold, but an extreme oversold is positive 4,000 and we haven't seen that since the March low.
You can see the theme here: A few more down days stops this pattern of the market from enjoying a one or two day rally before coming down again, thus getting it sufficiently oversold in the short term.
There was much discussion Tuesday morning where folks asked is this the bottom? I will say the same thing I said about the top: I will know it after the fact. To my credit, I have noted well before the recent action that I think the bear market began in February of 2021 and we are 15-16 months into it. You simply don't have the kind of speculation that we saw in January/February last year and it is not the internal top for most stocks.
But let's talk about what a bottom looks like, not in terms of indicators, but charts. Since everyone loves energy, let's look at the Energy Select Sector SPDR Fund (XLE) , an exchange-traded fund for energy. I realize the Covid Crash is on the chart, but forget that, and notice that the highs before that were around $55. It comes down to $25 (I will use $25, because we were under $25 for like three minutes). And then it took almost two years before XLE was able to break out from that base. Two years. And energy didn't have a bubble to burst like software.
Now let's look at Upstart (UPST) , the disaster du jour on Tuesday. It was trying desperately to bottom and base since January, but that gap down is a whole new reset. There are lows and there are bottoms/bases. Should UPST rally from here maybe it will be a low but it certainly won't be a base, will it? It had the chance but it blew it.
So, sure, that March 2020 low in XLE was the low but that level was retested eight months later, and even then you had time to get on board for the breakout. Wait for bases to set up and develop, then we can talk about bottoms and bases. Until then it's just a low.