We are all in agreement: That was some move in the final minutes of trading on Friday.
There are plenty of reasons thrown about for the move, but what difference does it make? Wouldn't we be rationalizing the indicators if we felt the need to know "why?" I always prefer not to rationalize a move.
I still think we are likely to have a rally into early April. I am still unsure how it unfolds though.
By that I mean, after the sort of final burst we saw on Friday, it would be shocking if we didn't see some give back early in the week this week. But even if we did, I still see us in an oversold zone so I would still then look for another rally into early April.
My own Overbought/Oversold Oscillators are in the oversold time frame. And if you are wondering why the late in the week rally can barely be seen on the chart, it's because using this particular metric we did not get to a fully oversold condition.
But notice that the 30-day moving average of the advance/decline line is also oversold. I am sure someone will ask, so let me note that this momentum indicator has been making lower highs and lower lows. Overall. that means that each rally is basically telling us what we already know: They can't lift off for long periods of time, because they don't give themselves a chance to get the flush and washout. That's why we just keep getting the oscillations back and forth every few weeks.
In other positive news the number of stocks making new lows finally contracted on Friday.
Before we leave the discussion on breadth, note that breadth lagged last week. The S&P is kissing the highs and breadth is still lower than its peak. That potential divergence needs to be monitored. If it continues then that potential head and shoulders top I drew in on the chart of the Russell 2000 late last week could be in play.
I would also note on the sentiment front that the equity put/call ratio has been over .50 for three straight days, something it hasn't done since late October/early November. It was a lot higher back then, but this is a change where we have had two up days in the market and the equity put/call ratio didn't sink like a stone.
Sticking with sentiment, I may as well offer you the flipside. My Saturday Twitter poll shows 66% looking for upside this coming week, which happens to be the highest reading yet for the bulls. And if that wasn't enough the Daily Sentiment Index (DSI) for the VIX is back at 13. As you probably know by now low readings are a set up for more volatility not less. That's why I'm not so sure this oversold reading is going to be one of those up up and away types but likely to be more up and down.
The polls are closed and the results are in. Folks are the most bullish they have been in the almost one year I have been running this poll.— Helene Meisler (@hmeisler) March 27, 2021
And thanks to @Pointedmacro for putting it in chart form.
But mostly thanks to you guys for voting each week!https://t.co/wfovTxDKUP pic.twitter.com/jryctS0VMw
Consider that this coming Friday we will see the Employment Report out. But it is Good Friday, which is the only day that the bond markets are open and stock markets are not. If the DSI for the VIX is low coming into Friday, that would be a good set up for a rise in volatility.
I want to conclude with one note on the end of the quarter and the beginning of the new quarter. I have seen many cite that it is seasonally bullish. I am not a fan of seasonality, but the last 11 years the final day of the quarter has been down six times and up five. The first day of the second quarter has been down five and up six times. That is a coin-toss to me.
If we use the last five years, it's down three and up two for both days. And what happens on the final day has no bearing on the first day, because we've had three times both days have been down and three times both have been up. Color me confused as to why folks think these days are so seasonally bullish.
In fact it seems to me that it plays right into the "more volatility" not less column.