At least we know my Twitter polls are good contrarian indicators.Thank you everyone for voting. Go RUT go! pic.twitter.com/YM9yrNrPuV
— Helene Meisler (@hmeisler) July 24, 2019
First we had the banks run after the majority didn't like them, and Wednesday we had the small-caps run, after the majority didn't like them.
But was it a good rally?
Well, I can't argue with breadth; it was the best breadth since June 28. It was enough to get the McClellan Summation Index to stop going down, but not enough to turn it back up. That would require another up day for breadth.
The number of stocks making new highs still fell short of the peak readings a month ago. There were 323 new highs on the New York Stock Exchange June 21, and on Wednesday we saw 238. Nasdaq came a bit closer, but it's still a negative divergence.
The number of stocks making new lows finally contracted for Nasdaq, but I have a hard time thinking Nasdaq is in great shape when the index is at all time highs and there are 90 stocks making new lows. The 10-day moving average of this metric continues to rise.
Betting on Banks
But let's talk about the banks. Yes this is a group I am still fond of, but all of a sudden, so is everyone else. It's as though they are coming out of the woodwork now. Just as the Bank Index gets to some decent resistance. I would not be surprised by a day or two of rest.
A Jolt for the Semis?
Next up is the semiconductors, which have been on fire. When I calculate the ratio of the PHLX Semiconductor Sector SOX to Nasdaq, I find that it's at .195. It has gotten to this area twice before in the last few years. In November 2017 and, again, in April of this year. Each time it was a peak of some sort for the semis.
Now there is a caveat. The ratio (red line) needs to stop going up and turn south before it matters. But once up in this area it is usually quite stretched. I think the semis act OK, for the most part, but this level of over-boughtness tells me they are getting long in the tooth. I wrote about this ratio in early April, and the semis kept going for another week or two, so timing-wise I was wrong. But it was worth paying attention.
Just Like April...
It's interesting that it is back to April's level, since we discussed April yesterday. Now there is another indicator that shows up like April. I thought the Daily Sentiment Index (DSI) for the Volatility Index would fall on Wednesday. I was sure of it. I was clearly wrong here, because it stayed at 19, much to my chagrin.
But the put/call ratio for the VIX has sunk to 13%. The last time it was this low was June 6, and it was bullish. But the market was oversold and we'd been falling for a month. So then I noticed it was this low for the days in mid-April and again on May 1, which was a hard down day.
You can see we did rally for another week after those mid-April readings, and two days after the May 1 reading, as well. But they were right.
When we look at the chart of the VIX from that period of time, we see a plunge to 12 (similar to now) and then it stopped going down until early May. So I am not giving up on my call for more volatility in the weeks ahead.
Overbought/Oversold
