Can you feel the shift?
I know you can. It happens slowly, folks don't want to believe the market is going down. They want to believe, after so many months of nothing but up, that every little ½% dip is a buying opportunity. Recall last week, after the first down week in what felt like forever, my Saturday Twitter Poll still had a 50-50 split. Now it's at 48% up and 52% down.
Saturday Poll.— Helene Meisler (@hmeisler) September 12, 2020
The next 100 points on the S&P?
Now we're two weeks into the decline and we're starting to hear lower targets given. Now we're two weeks into the decline and there is much more cautious talk, like how many times did you hear about "election uncertainty" this past week? If you muted those words you might not have heard any market commentary.
Is it enough to say folks are bearish? No, I don't think so. But I do think we're witnessing a sentiment shift. I noted it with the National Association of Active Investment Managers Exposure Index on Friday, when we saw that plunge from over 100 to just over 60. I think it goes below 50 before this is over. We also saw the minor back off in the Investor's Intelligence Bulls from 61.5% to 59%. I suspect this week's readings will see it even lower. I suspect we'll see the bulls under 50% by the time this is over.
In the last six weeks, we have seen a pattern change in the market.
In the last six weeks, we have seen a pattern change in the market. First, in early August we saw Nasdaq enjoy its first three-day losing streak since March. As I have said, it might not seem like much at the time, especially when the losses are so small, but a pattern change is noteworthy.
Then, we saw the Invesco QQQ (QQQ) breakdown from that long standing channel, the one that has been in place since April. That too is a shift and a change in the pattern.
Finally, we saw the S&P enjoy two consecutive down weeks, something we haven't seen since March. So the patterns have shifted, from what was a relentless up move in the indexes to something a bit more serious. Even June's 7% correction in the S&P didn't see the QQQs break the channel or Nasdaq have three consecutive red days or even two consecutive red weeks for the S&P.
I still think we will cycle through more to see the indicators get back to where they show more bearishness than now, but nothing goes in a straight line. As we head into the latter part of this week, my own Oscillator will get oversold. It has been languishing near the lows and oversold territory for weeks now, but this time the indexes have finally come down with it.
Then there is the Nasdaq Momentum Indicator. What I do here is walk Nasdaq down a few hundred points over the course of the next week to see what day the Momentum Indicator turns up, because when you get lower prices and a higher move in the Momentum Indicator, you are oversold. That occurs on Wednesday, which coincidentally is the day the Fed opines.
If the market is down early in this week, I would look for a short-term oversold rally by midweek. And surely if the market is down early in the week, the bearish chatter should get louder, which would be enough to give us a short term rally.