Do you recall last week, when I said I thought for sure that if the yield on the 10-Year Note scooted over 4% we'd get hysteria? Do you recall how we scooted over 4%, and stocks yawned? There was no hysteria. There was some form of realization as to why stocks had been heading down in February, but that was about it.
It was as if folks were on a delayed timer, or maybe they just didn't believe the bond market? Or maybe they just needed to hear it from Fed Chair Powell himself, but on Tuesday, stocks finally said wait a minute, this interest rate thing is out of control.
Was there hysteria? No. Was there concern? Yes. Was there a renewed level of bearishness? For sure. But all I have for you is anecdotal chatter on that, because we did not see the put/call ratio move up, but we did see selling in stocks.
The breadth of the market turned from leader to laggard in early February. We know this, because we have looked at this chart before, but also the McClellan Summation Index has been heading down since it turned south over a month ago. It hasn't even attempted a turn to back up. It came close last week, but that never materialized.
Now we have the cumulative advance/decline line making a minor lower low (blue line) vs. the S&P, but also vs. the other indexes. I have boxed off the action in late December, so you can see how the S&P milled around and breadth lifted, leaving the S&P behind to play catch up. Now it's the S&P that is holding up better than breadth. Healthy markets have breadth leading.
The intermediate-term indicators did not change much after Tuesday's rout. They inched, maybe I should use "centimetered," since the moves were so minute on the chart, more toward an oversold condition. The best example I can share is that the Nasdaq Hi-Lo Indicator went from .41 to .4075 on Tuesday. If I round that .4075 it goes to .41.
Heck, even the put/call ratio wasn't that high with a reading of .87, which happens to be the lowest since early February. I suppose the good news is that the Daily Sentiment Indicator (DSI) for the Volatility Index notched up to 23, lifting it out of the immediate danger zone.
The indicators remain where they have been: heading toward an oversold condition, but not there yet. Although my suspicion is that sentiment could turn more sour as we get closer to that oversold condition.
In any event, stocks haven't broken any well-watched levels, all they have done is give back last Friday's rally, which to me is more confirmation that we should continue to expect volatility in the market. And just to frustrate everyone the market probably rallies on Wednesday!
