The Volatility Index has been down for five-straight days. Everyone wants to know if this red streak is a big deal. I have no idea. My view on the VIX is that when it gets jumpy, it tends to be bullish for stocks. I think it got a bit jumpy in late January and everything else since then has been relatively muted.
Sticking with sentiment, I typically compare the Sentiment Cycle to the S&P 500, where I still think we're somewhere to the right of "Buy the dip." What I haven't done before is compare it to the chart of the small caps, namely the Russell 2000. Let's use Russell 2000 fund (IWM) .
I have marked the IWM chart up with some notes, matching it to the Sentiment Cycle and I think it matches up rather well, from a price perspective. Now, I know there is a question whether or not last week was Panic. (I do not think it was panic in the sense that we are used to it, but it was Panic-adjacent).
Does it matter in the big picture? I think not. I think both say something similar: rebound now, but a lot of work ahead in terms of basing. This means we should not fall in love with stocks, we just trade them. That has been something I've discussed before and likely will continue to discuss. After the damage that has hit, we would only typically get a "V" bottom if the Fed changed its tune, which at this point is unlikely.
As for Monday's market, breadth hung in there and was flat on the day, but it has not yet changed any of the indicators. I did, however, go back and revisit the Nasdaq Momentum Indicator to see if last week's rally changed the math and it hasn't. Even if I walk Nasdaq down in the coming days you can see the Momentum Indicator still rises. That's why I maintain if we pullback early this week I still think we have another rally.
Perhaps a pullback early this week would silence all the folks who decided we had a tradeable bottom after Friday's action.
I will continue to focus on the number of stocks making new lows. Last week the New York Stock Exchange got to just over 1,000 new lows. I do not want to see the new lows creep up -- surge up -- on an early week pullback. The 10-day moving average of new lows peaked on Friday and it would be helpful for a rebound if they continued to remain subdued.
