I noted a week ago how we were overbought. At the time, I said I expected a pullback similar to what we saw in October. The pullback last week was minimal in terms of the indexes, except that the Russell 2000 had fallen by 4% by Thursday evening.
Monday, that jumped to Nasdaq, as it is now down close to 5% from the highs. But you know what we don't see? We don't see much fear. We don't even see much concern. And concern comes before fear. From my vantage point, I see a lot of shrugging.
Perhaps it's because breadth was flat on Monday. Perhaps it's because all those stocks that languished last summer while the mega-cap tech stocks were the only game in town are now the hot stocks. But when the put/call ratio is .69 on the day, I say there wasn't much concern. As a reminder, when we got oversold a few weeks ago the put/call ratio was .93. That's quite a difference.
In any event, the Overbought/Oversold Oscillator has come down more, although it has still not crossed the zero-line. And for the first time since February 2020, the S&P has made it to five-straight red days.
I have spent much time in the last few weeks talking about pattern changes. First there was the change for Nasdaq's volume. After being consistently positive for months, we now have a clump of days where down volume is greater than up volume. That's a pattern change.
Another pattern change is that by last Thursday everyone had noticed the market had a tendency to make the low in the morning and claw its way back the remainder of the day. Now, we haven't seen that action in the last two trading days as we have closed on the low the last two trading days.
So, the newest pattern change is the number of consecutive down days. Pattern changes tend to tell us there is a shift taking place in the market.
Here's another pattern change. The number of stocks making new lows has consistently been under five on the New York Stock Exchange. Last week it shuffled up to between five and 10. Monday it came in at 15. Usually over 20 means there is some real change, but the chart of the ten-day moving average of stocks at new lows shows you what I'm talking about, because it just made a higher high for the first time since November.
I will end by noting that the Daily Sentiment Index (DSI) for bonds is now at 13. The last time it was this low was three years ago. Bonds had a short-term, one- or two-week rally, so rates went down, and then bonds retreated again to another low before rallying much better. The bottom line is 13 is a low reading for the bonds.