It seems everyone has a GameStop (GME) story these days. Some relative has bought it or traded it. Or their hairdresser is trading it. Or, if that's not the case, then someone who has never asked about the stock market before has inquired about this "GameStop Thing."
It has permeated the airwaves in every manner possible.
The front page of the Wall Street Journal had it, as it should have. Then Barron's came along with a cover story on it. Again, this seems natural. But the New York Post also had it on the cover. And the nightly network news shows did, as well. And if all of this wasn't enough, now Congress wants to put its two cents in, as well.
But GME is just the catalyst that caught everyone's attention. As we know, stocks had been leaking for weeks already. But not the indexes. No, the indexes were sitting in those very well defined channels. But Friday's action saw those channels broken to the downside.
I know most folks think technical analysis is about "levels," so invariably the question I get during a decline is "how far down?" or "where do you think we'll go on the downside?" I honestly don't care about levels. I care about indicators.
I care if we're oversold (getting there). I care if there are positive divergences (one minor one). I care if sentiment is bearish (no, but it has definitely shifted from the highly complacent situation it was in just a week ago).
Let's start with the oversold situation. My Oscillator is based on the 10-day moving average of the net breadth. I like to look back and if I see we are about to drop a long string of negative breadth readings, then I think we are in an oversold condition. Sometimes, it is easy to pinpoint the exact day this will occur and sometimes it is a bit blurry, like now. Let's just say we're heading toward a short term oversold condition.
On an intermediate-term basis, the 30-day moving average of the advance/decline line isn't even under the zero line yet, so I suspect it will lift and come back down in the coming weeks.
Last Wednesday saw a significant increase in the number of stocks making new lows. Friday saw that number contract. For example the New York Stock Exchange saw 33 new lows Wednesday and five on Friday, despite all the indexes making a lower low. That's a minor positive divergence.
Sentiment-wise I have noted the National Association of Active Investment Managers Exposure Index has come down from 113 to 83, which tells me sentiment is pulling back from that exuberance. The AAII readings say the same with the back off in bulls and the move up in bears. The put/call ratio on Friday lifted to .93, which is the highest since early December, another sign there is a shift in sentiment. The Equity put/call ratio was .58, which in the big scheme of things is totally neutral, but it was the highest since the election. That's the shift. The 10-day moving averages of these metrics are still rising (that's more intermediate term).
My Saturday Twitter poll (which is wholly unscientific, but has often been a good tell) showed 42% looking for the next 100 S&P points to be up, while 58% were looking for down.
Saturday Twitter Poll results are in!January 30, 2021
I can't thank you guys enough for participating each week! You're the best!
That is not as extreme as it was two weeks ago when the spread was 20 points, but it too shows a decided shift in sentiment.
The intermediate-term indicators are not oversold and sentiment is not that bearish, but we are heading toward a short-term oversold condition, so I suspect, especially if we open down on Monday, we will see an oversold bounce this week. But I do not expect the volatility to go away; that will require more indicators to get oversold and more extreme.