They say the technical analyst's curse is to want one more rally and, more often than not, that one more rally never materializes. Could that be the case this week? Sure.
But rather than focus on that possibility, let's go back to the discussion of the Volatility Index. It fell on Monday. Yes, despite that, the S&P 500 was red on the day the Volatility Index was down, and not marginally. You would have to squint really hard to see it actually made a lower-low than two weeks ago, but the point is that the VIX came down. And along with the VIX falling, the Daily Sentiment Index (DSI) for the VIX fell. It is now at 21.
If the market does rally at some point this week -- especially if it does so on Tuesday -- the VIX could fall further, and, along with it, we could see the DSI for it turn into a teenager. For me, all of this continues to point toward a market that should bring us a higher level of volatility as we head into December.
We've seen small-cap tech begin to roll back over. Many of the hot names from 2020 spent most of 2021 heading down, but since the spring, they got a reprieve by going sideways. Now many of them are pushing down again. That's why once again instead of watching the new highs on Nasdaq we're back to watching new lows.
Nasdaq's new lows are now around 275, double what they were a week ago. The reading on Nov. 9, just before we got that consumer price index print that got folks so excited, was 511. So that's the first measurement to watch: Can new lows stay fewer than 511?
I was asked about the Dow. I addressed the Dow just about a week or so ago when we took a closer look at United Healthcare (UNH) , the largest weighting in the index. Is the outperformance of the Dow a major divergence? Yes.
To me it signals a flight to safety. The safety of big-cap stocks. It also helps that the Dow is so weighted toward health care, staples and energy. But I think it is likely within the next one or two months the Dow is in for a decent correction.
Sometimes it is helpful to look at the chart upside down. For that purpose we'll look at DOG (DOG) , an exchange-traded fund to be short the Dow. Look at all that support at $32. I look at this chart and think somewhere between $32-$32.50 this is due a bounce. Maybe it takes a while to develop as it did in April, but If this chart is to break $32 with any oomph it is going to need a running start and that would mean it needs a rally to do so.
Or, said another way, the Dow needs a pullback. Perhaps it will do so in December when I expect we'll see more volatility in the markets.
