I don't know if it's the unwinding of long-standing trades or just because we're heading into the end of the quarter, but I was surprised no one fussed more over the move in the Utilities on Wednesday.
For weeks I heard from folks on television that the market was bearish because Utes were leading. Each time I heard this, I found myself screaming at the TV. The Utes typically top out before the major indexes do, so they are a warning sign when they start to go down, not when they are going up and making new highs. Lower Utes typically signal higher interest rates, and higher interest rates are typically a problem for stocks. Wednesday the Utes lost 2%, which is their biggest daily loss since January.
Now the January decline, as you can see by the arrow on the chart, was really just a retest of the December low, so it looks quite different than the current decline. At this point, I think the Utes will come down and attempt to hold at that uptrend line, because they have done so throughout 2019.
One reason I watch the Utes so closely is that they tend to go hand in hand with the bonds. You might recall from my Monday column that I thought it was time for yields to rise a bit and they are still struggling to go up, but Wednesday was a start.
The first thing I have my eyes on is that 2.05% level, because if yields are going to rally, then we need a higher high, and that would be a first step. Notice we had a minor higher high in mid-June, but it was so short lived as we then plunged to a lower low. I still think that around 2.10% is where the real resistance is. This is why the action in the Utes is important to me.
Also on Wednesday, the S&P 500 and the Russell 2000 clocked in four-straight days of red. They have not gone to five since early March. The longer we go without even a modest green day, the more likely it is we get one. But we don't get to an oversold condition by rallying, we get to one by pulling back and declining.
The Overbought/Oversold Oscillators are heading toward oversold, which I still expect to arrive sometime near the July 4 holiday. I still have my sights on those gaps below in both the S&P 500 and Nasdaq, and it remains a strong possibility that we could fill them as we get to oversold.
Finally, the put/call ratio for the Volatility Index was high at 91%. Hitting triple digits is what would be most concerning, but it is curious that it seems folks are now betting on a lower VIX. Are they expecting good trade news out of the G-20? I don't know, but it's something to pay attention to, because the last time it went triple digits was May 21, just before the final push down to oversold in late May.
(This column has been updated.)