I'm just full of old adages. Last week, it was be careful what you wish for. This week there is good news and bad news, which would you like first? Oh, okay we'll start with the good news.
The good news is that the decline we needed at the end of last week arrived and declines lead to oversold conditions. I can see the market having a minor - minor - oversold condition on Tuesday. You can see the Overbought/Oversold Oscillator has finally come back down. But remember the math behind it says do not expect to see the Oscillator rise after Monday even if the market rallies Monday. A decline on Monday would take that Oscillator back down to near the May lows. A rally on Monday would probably take it down as well. Again, it's the math.
I will give you some more good news. For the last 18 months, it has been breadth that has led the market down. Notice that cumulative breadth has made lower highs and lower lows all year. In May, it made its low early in the month. At the lows in late May it made a higher low. Now look: the S&P is back at that late May low (3,900) and breadth is at a higher low.
Oh sure, it may take out that May low on Monday or another day soon, but for the time being it has not done so. And if you want a sentiment check, when I showed this chart on Twitter on the weekend I was bombarded with comments such as 'it has to turn up to say it is a higher low' or 'it hasn't made a lower low yet'. I could go on but as you can see, the comments were not positive.
One last bit of good news is the sentiment. Anecdotal from above but the equity put/call ratio was 0.89 which is the highest since the March 2020 decline. Then there is my Twitter Poll taken each Saturday for the last two years. Let me state it is not scientific but those looking for the next 100 points in the S&P 500 to be up were 40% and the down vote was 60%.
In the two years I have been doing this poll, we have only had a spread of at/near -20 five other times. I have noted each time on the chart of the S&P below.
Now for the bad news. The intermediate term indicators are not where they were in May or even March. They are either already overbought or getting there by the end of the month. While short term sentiment is quite bearish overall, as I have noted all last week, it is not nearly as bearish as it was in May. It may get back there, but it is not there yet.
Once again please look at the chart of the Sentiment Cycle and see how many short sharp rallies there were below that horizontal line that led to further declines and lower lows. If - and that's a big if - we are in a bottoming process that takes many months of ups and downs. Do not fall in love with your stocks.