There were several themes I noticed chattered about on Monday. Let me start with 2018.
How many times have you heard a comparison of December 2018 with now? As for those folks comparing now with December 2018, I would put them in the camp that says, "down for several more days and then a decent multi-week rally." In other words, I take that as a hope trade.
I would like everyone to keep in mind that the Fed pivoted in late 2018. Do you really think the Fed is about to pivot in the next two weeks after it just told us last week it was looking at higher for longer? Also in 2018 the market made its high in early October, not a year ago. I just feel the comparison is weak.
Then there was what seems to be a realization that the mega-cap tech stocks have been acting terribly. In fact, how many times did you see that head-and-shoulders top on Apple (AAPL) shown? Here's Apple's problem, and it has been a problem for more than a month: those lower highs. There is a reason I spent November talking about fewer stocks making new highs. Now I understand that Apple had not made a new high, but lower highs are lower highs. And now it made a lower-low (than October), which must be why everyone has decided to fret on Monday.
The chart looks awful, but it is down from $150 to nearly $130 where there is some minor support, in a straight line. I can see a bounce.
Now let's talk about what happens if I am wrong and we don't get a short-term oversold bounce this week and instead we plunge, or heck, we just continue the relentless downside.
First the market will get even more oversold (short-term) than it is -- obviously. Then there is the Daily Sentiment Indicator (DSI), which for Nasdaq is now at 15 and 17 for the S&P. If we continue down for a few more days those readings will be single digits. Then we'd have an oversold (short-term) market coupled with a single digit DSI reading, which in my view would set up a Santa Rally. So, it's just a matter of how we get there.
Let me remind you that the intermediate-term indicators are not oversold so I am just talking short term now but I'm trying to show you that we're getting stretched on a short-term basis.
Finally, I was asked about the Volatility Index to which I have no answer as to why it just sits here, doing nothing. It was right to look for more volatility when the VIX slipped under 20 and moved to 26 but with it at 22.40 it's hard to make a case for much. The DSI is 23, which is also curious since it is rare the DSI for the VIX and the major indexes are so close together. Perhaps it is related to the now spoiled put/call ratios, since it is based on options on the S&P.
