If you have been waiting for something to change in the market, then Wednesday was that day. I mean sentiment anecdotally went from, "The market only goes up" to, "Whoa, the market is not good up here."
Statistically we saw something different. For weeks we could barely get the put/call ratio down under .90 on up days. Heck a week ago the put/call ratio was regularly clocking in at .99. Wednesday -- a decent down day -- saw the put/call ratio at .91. I expected it to spurt way up over 1.0, but it didn't.
My point here is that folks didn't flock to put buying on the down day. They bought them, but not with the same wild abandon they have been for the last few months. To me, that says that my theory that a pullback and a re-rally would make folks want to buy the dip and turn more bullish might be correct.
What else happened is that breadth was terrible. It was the worst breadth since June 16. Some will say, Wait, that was the low. We all know there is a difference between an oversold market (June) and an overbought one (now), when looking at statistics. But with that noted, the McClellan Summation Index is still heading up. We came into the week with it needing a net differential of negative 3,900 advancers minus decliners on the New York Stock Exchange to halt the rise, but we now need a mere negative 300 to do that. That is the result of the weakening of breadth this week.
The place that we did see a slight change is Nasdaq. For Nasdaq, I prefer to use volume for the Summation Index (up minus down). Nasdaq came into the week needing a net differential of -3.9 billion shares to halt the rise. As of today it needs a net differential of 700 million shares to turn it back up.
I would love to see Nasdaq rally one more time, before it heads down into a correction. I believe, remember, that a pullback that then rallies again gets folks more bullish. Will the market accommodate me?
I have noted for the last week the chart of iShares iBoxx $ High Yield Corporate Bond exchange-traded fund (HYG) . First it stalled, then it came down. Now it is staring at what has been support in August: $77.50. If that breaks, I think folks will get scared again.
So, we have breadth weakening, sentiment more middle of the road, but nowhere near extreme, and HYG on the cusp. But, hey, at least the Overbought/Oversold Oscillator finally started coming down.