We had a minor change in the pattern on Tuesday. You see, since last Tuesday the market has enjoyed a rally into the close every day. Tuesday changed the pattern when we sold off into the close.
Tuesday also saw a lot of stocks down most of the day and refuse to recover. Breadth was the worst it has been in two weeks. You can see it on the chart of breadth, I have been highlighting for weeks now. Only now you can see breadth made a lower low (blue line) while the S&P even though it was down is still above the early May low.
You can see it in the McClellan Summation Index and its slow-but-steady march lower since mid-April.
So what exactly changed on Tuesday? I mean we did not see a pick up in the number of stocks making new lows. Not yet at least.
What changed -- for me -- was the anecdotal sentiment. The day began with the data from Bank of America's investor survey. That showed us how bearish everyone is. The headline is how folks are now the most bearish since October 2008. OK, we have seen other surveys, especially back in October showing something similar. But if you own any stocks outside of the "Group of Ten," you're not seeing much positive in your portfolio. It makes sense.
Yet, that same exact survey, where folks are super duper bearish -- Financial Crisis Bearish -- finds that these same folks increased their allocation to technology stocks-big cap tech. Let me sum this up for you: These folks are bearish as can be and yet their exposure to equities is the highest of the year and it is concentrated in big-cap tech stocks.
A few weeks ago we looked at the Barron's Big Money Poll, and I pointed out how in a survey the majority said they preferred bonds over stocks. That was even the headline of the story Barron's put on it. But then when asked how they were allocated, they had more stocks than bonds.
As I watched a parade of guests on CNBC yesterday, I saw folks who have been bearish for quite some time -- correctly bearish -- come on and say the same things they have said for a year now only now instead of telling us how much cash or bonds or Treasuries they have, now lo and behold, they "have owned" mega- cap tech, as well. We hadn't heard that when Alphabet (GOOGL) or Meta (META) were at $90.
Almost every single guest noted the divergence with breadth, they noted some upcoming recession and then they noted they were long the Group of Ten, or some version of those favored few.
And that is why I say we have complacency in the market. Folks are very bearish on 470 stocks, but they are happy to own big-cap tech, staples and homebuilders with the latter two mentioned in passing only.
The good news is that each day we get action like we got on Tuesday, the closer we get to an intermediate-term oversold condition. I am not quite sure how we change that complacency, though. Well we know if the prices went down that would change it.