I noted last week that because the breadth had been so poor for two weeks straight that the Overbought/Oversold Oscillator had gotten oversold. Since this indicator is based on breadth, it meant that the down-and-out stocks were oversold. And, sure enough, that's what finally got a bid on Thursday and Friday.
We are at that stage in the market where we find there's a lot of "this has never happened before" or "the last time this occurred was a handful of times in 2000 or 2001." One such example is the oscillator. Look at that surge in the S&P (brown) as the oscillator fell hard (green box). I have looked back and am not sure I even saw that in 2000. Yet that's the place we find ourselves in.
Nasdaq finds itself in the same spot. It's just really odd for the oscillator to be so low (oversold) with the indexes having had nary a down day. Yes, that's the result of a handful of stocks moving the indexes around, but it really speaks of how weak everything else had been prior to Thursday. It's still too soon to say when the oscillator will get back to overbought, since it's only been two trading days.
There is something else that is worth noting here. It's got to do with sentiment. I am a firm believer that as price goes down, folks tend to get more bearish. As price rises, however, folks tend to get more bullish. That's the contrarian view. We have seen that play out in the market this year.
When the market refuses to correct and keeps rising, seasoned market players tend to get less bullish, not more.
But there is something else that occurs that is rarely discussed. When the market refuses to correct and keeps rising, seasoned market players who have seen several cycles, not just the current one, tend to get less bullish, not more. They may even become more bearish or cautious as price rices. So, in that case, higher prices do not get them more bulled up.
I think we are at that point now.
Last week, I noted that the Investor's Intelligence bulls got to 60%, but it was a very lazy or lethargic 60%, having seen the bulls nudge up less than one point in a week. Even if you watch the CNN Fear and Greed Index, you might notice that no matter what the market does this indicator adds points grudgingly.
Or, I can cite the put/call ratios. They are low and last week we had two readings with the equity put/call ratio under .40, but if you think it is going to go significantly lower than that, I would take the other side of that trade. That's because I think it's pushing the lower limits at this point.
The price chart (as opposed to the indicator chart) to focus on is still the Invesco QQQ (QQQ) channel. It cruised outside of it in early July for a day and quickly snapped back. My hand drawn chart shows us at the line already; this computerized one says the a smidgen of room, but to me this is the chart to watch, because these are the stocks that move the indexes, not the down and outers.