I wish I could tell you that I have a better sense about the sentiment, but I don't. I still think there is too much complacency, since we haven't seen any extremes yet. And the high put/call ratio from Monday came back to a more neutral reading on Wednesday.
I have noticed, however, that last summer as all the reopening trades were heading down on a daily basis and select big-cap technology stocks were soaring, it did not phase folks. So, now that this has reversed, it doesn't seem to phase folks much, either. That's one reason I still see complacency.
But let's talk once again about stocks making new lows. They have surged. The New York Stock Exchange saw the most stocks making new lows since October.
Over on Nasdaq, we now have the most new lows since last April. It's important to note that the number of stocks making new lows on Nasdaq is now higher than it was in October or September when the index was much lower.
The same way I fuss over the number of new highs, I fuss over the new lows. The concept with new highs is that the more new highs we see, the easier it is to find stocks to buy. It's a measure of breadth. Typically what I like to see in new lows is a wide expansion on a downdraft in the market, which is followed by a rally (so the sequence we have seen in the last few days) and then another move down that preferably has a lower low in the index, but fewer stocks making new lows, giving us a positive divergence.
You can see that is now off the table, since the index hasn't made a lower low, but the number of stocks making new lows expanded anyway.
Now let's talk about the Hi-Lo Indicator. Two days ago, I noted it was still over 90%. The expansion in new lows has now moved that to 81%. A really good oversold reading takes place under 20%. But even at the September and October lows we saw this come in between 40% and 50%. It is an intermediate-term indicator and as you can see it is still not close to getting oversold.
I do expect with the new lows surging as they are, it should start to come down even more quickly, but it hasn't happened yet.
As long as we're on the subject of Nasdaq, I want to point out that the volume for Nasdaq has been regularly contracting. The blue line represents Tuesday's volume. Notice that mostly Nasdaq's volume tends to sit on either side of that four billion share level. After the election it went over it and never looked back. I think that is the speculation we saw in the market showing itself to us. But as you can see volume has been falling in the last few days. I think that is the speculation getting wrung out of the market.
If we are down on Wednesday I would look for us to rally again late in the week, but this surge in new lows still has me in the camp of more volatility to come because the intermediate-term indicators are not oversold.