Three down days. That has been the limit on the downside for this market. The S&P 500, Nasdaq, the Russell 2000 and the Dow Jones industrial average have all been red for the last three trading days. Not since February has one of them gone to four-straight red days.
Does this matter?
In the big picture no, not at all. But if we do see the market red on Wednesday, then we would be inclined to say that the pattern has changed. Remember, we hadn't seen three-straight red days for Nasdaq until early August? Oh, sure, we rallied after that, but that was the change in the pattern. So that's the only reason we care if Wednesday is red.
Typically, after the sort of whack we've seen, I would cite a bunch of statistics to you that indicated we are due for a bounce. Some of those indicators or statistics would be things like a jumpy Volatility Index. The VIX was barely up on Tuesday, so we can't say the VIX was jumpy.
I might note that 90% of the volume was on the downside during one of the three days. But that, too, has not happened. A day where 90% of the volume on the downside shows up means we're seeing some level of capitulatory selling -- a give up.
I might note that the volume for the Invesco QQQ (QQQ) has been super high. It has. But it has been super high for three days, so it doesn't mean much now. In fact, what has changed is the QQQs fell out of the channel that has been almost textbook perfect for the last nearly five months.
I can't even note that the put/call ratio was high, since Tuesday didn't even see it get up over 1.0. So, all those signs that typically tell us it's overdone on the downside are not present.
What is present is that the still very much declining McClellan Summation Index now requires a net differential of positive 3,700 advancers minus decliners on the New York Stock Exchange. At positive 4,000, it has stepped into an extreme oversold condition. As you can see, there are times it gets more extreme (see March and December 2018 on the chart), but, in general, once we get to positive 4,000 or more, we're short-term oversold using this metric.
Here's the chart of the Nasdaq McClellan Summation Index using volume. This, too, is in a solid downtrend. It currently needs a net differential of positive 5.4 billion shares (up minus down volume) to halt the decline. The last time it needed that much was late February when it needed positive 6.2 billion shares. It took another three weeks of selling before we saw a low. But what I think it reveals is how much deterioration was happening underneath before three days ago.
A few weeks ago, I showed this chart of the Sentiment Cycle indicating I thought we were at Enthusiasm. If I had to hazard a guess now, I'd say we're near Subtle Warning, or just to the left of it on the chart.