Everyone is so gloomy. I suppose the trade war doesn't help. Neither does the fact that the economy really does seem to be slowing. And then stocks in general are acting quite poorly. I mean, what has happened to all the bulls?
Was it just two weeks ago that Target's (TGT) earnings were so good that everyone screamed how you can't bet against the U.S. consumer? Oh and Walmart (WMT) , too. How about when Apple (AAPL) and Alphabet (GOOGL) had blow out earnings and gapped up? Where'd all that excitement go?
But OK, since everyone is so bearish, let's explore the bear case here. For example, what happens if the S&P 500 plunges 100 points from here and takes out the early and mid-August low around 2820? You know, the bottom of the trading range.
Well let's begin with the number of stocks making new lows. Tuesday's decline saw 100 new lows on the New York Stock Exchange. In mid-August there were just over 300 new lows. Heck, 10 days ago, just prior to my vacation, there were just over 200 new lows. So what if we go down there again and there are fewer than 300 new lows? We would have a positive divergence, wouldn't we?
Nasdaq has a similar situation. It would need about 150 points more to revisit and take out the early August low. OK, here we have just shy of 310 new lows from mid-August. Tuesday saw 130. It's possible there could/would be an increase in new lows, but what if there wasn't? What if we went down there and there were fewer than 310 new lows? We would have a positive divergence, wouldn't we?
We discussed the breadth of the market, the cumulative advance/decline line in Tuesday's column. It just made a higher high on Friday. That blue arrow on the chart represents the mid-August low, which was essentially the same as the early August low. It is possible that a move under 2820 in the S&P breaks that prior low, but consider that net breadth was negative 700 on the NYSE on Tuesday. It's going to need a lot more than that to make a new low. If it does, it would confirm the bearish view everyone seems to have. If it doesn't, it would be a positive divergence.
My own Overbought/Oversold Oscillator remains in the middle of nowhere (thanks to the chop of the last four weeks). It is possible that a plunge of 100 points in the S&P would make a lower low, but again, what if it doesn't?
The one thing I do know is that a plunge of 100 points in the S&P will move all those sentiment indicators into panic mode/extreme readings. The Investors Intelligence bulls were at 43% last week. A one hundred point slide in the S&P would surely take this down to 35%.
The American Association of Individual Investors (AAII) would surely see the bears, who were at 42% last week, surge over 50%. And I am convinced the Citi Panic/Euphoria Model would no longer hover over Panic but would fall right into it.
That's what I would look for if we were to revisit or break those lows. In the meantime, the choppy trading range continues. Just to annoy me.