At the beginning of the month I thought technology was vulnerable. It had simply come too far too fast, but it had also become the only game in town. In particular the semiconductors looked the most vulnerable.
Since then, the SOX -- the semiconductor index -- is down a few percentage points, which is not what I envisioned, especially when you consider that the SOX has had exactly three green days the entire month so far. It's been a grind lower, yet I'm not even sure if there is complacency or aversion to stocks when it comes to this group. It's as if they ceased to exist. Two months ago it was "all semis all the time" and now there is silence.
Take a look at how poorly the semis have fared relative to Nasdaq. Typically when they are this bad we see a lot more price action (to the downside).
Then there is the chart of the SOX itself. I can see why folks would like the black line, since it starts from the spike low in October and connects two other lows. It shows the SOX broke late last week. I prefer the blue line. It is not as steep and it comes in around 2900, which also happens to be the February low, the mid March low and the December high. I had thought by now we'd see the SOX down at the blue line. I would still like to see it there.
Now comes the twist. Nasdaq, by dint of its being negative so much in the month. It has had zero consecutive green days in April -- what is supposed to be one of the strongest months of the year. I would remind you that I am not a fan of "seasonality," and here's a perfect example of why. Nasdaq's breadth has been red for five-straight days, and six of the last seven trading days.
Since my Overbought/Oversold Oscillator is based on the 10-day moving average of net breadth, it is going to be oversold (short term) by the end of this week).
So what's the twist? The twist is that the intermediate-term oscillator is finally heading toward an overbought condition. That looks to be the case sometime in the next week or so. I'll call it late during the first week of May.
They say markets will do what they can to confuse the majority and this one is trying its hardest to do so. Here is one more indicator that shouldn't be ignored: volume. It has dried up. Take a look at the 20-day moving average of New York Stock Exchange volume. It plunged in April. Typically low volume on a 20-day moving average means a correction is coming, because it means there is very little liquidity in the market so the market can get tossed around like a ship in stormy seas.
I tend to find the intermediate-term indicators are a better guide relative to the shorter-term indicators, so if the big-cap earnings provide a relief rally I would not be chasing it.
