The action on Monday took the wind right out of the bullish sails, didn't it?
It's all still part of the chop. If and when the intermediate-term indicators get oversold, it is my belief that it will be easier to get a rally going and keep it going.
Just as a quick update on some of those indicators: They have barely budged in days. The Hi-Lo Indicator is still in the .41-.43 area it was at last week. A reading under .40 is a toe into oversold territory while under .20 is a very good oversold reading.
The McClellan Summation Index is still heading down. It needs a net differential of positive 1,300 advancers minus decliners on the New York Stock Exchange to halt the decline. It's not great but a week ago it needed positive 3,600. At least positive 1,300 is within reach.
The 30-day moving average of the advance/decline line is not oversold yet either. My estimation is around mid month in March it should get there. I don't have a level that makes this oversold but rather a time factor.
The market can rally without this getting oversold but as you can see the rallies are better when this indicator is oversold.
On the sentiment front, the put/call ratio has been over 1.0 for nine of the last 10 trading days. The 10-day moving average stalled out on Monday. It's not that easy to predict when this will roll over, but you can see it has run quite far from the lows of early February. Remember when it is heading up folks are getting bearish. When it heads down folks are getting more bullish. With the 10-day average at 1.05, we know folks are leaning bearishly.
But now let's check in on the ratio of Russell 2000 fund (IWM) to the S&P 500 index fund (SPY) , or small caps to large caps. In early February, it tagged the same level it was in early November. It did it again late last week. The market tends to do better overall when this ratio is moving up not down. There is no level that screams bullish or bearish, but for the time being that .4775 level is tough for this ratio to get through. I suspect that when the intermediate-term indicators are oversold again this will stabilize and head back upward.
The other ratio I'm watching carefully is the SOX (semiconductors) to Nasdaq. Here you can see in February it got back to where it was in early 2022 and has stalled for six weeks now. Again, when this indicator is heading upward the market tends to rally better. When it is chopping or topping or heading down, the market struggles to rally and/or goes down.
Choppy markets are hard. It is also hard to wait for the indicators to get oversold after that initial drop. But that's the market we have.
One final note on the indicators, the Daily Sentiment Indicator (DSI) for the Volatility Index hasn't budged from Friday, so it's still at 17. Even if the market rallies on Tuesday, we know that it's a short runway with the DSI for the VIX this low since ultimately we need a bout of volatility to lift that reading. My view has not changed.
