The end of the quarter is often filled with wild moves. The end of the June quarter is often filled with wilder moves, because we've just come off the Russell rebalancing the prior week.
So, did the end of the quarter have anything to do with Tuesday's decline? I wish I had a solid answer for you, but I don't. It's possible. What I do know is that we did not hear from any of the "Sentiment Tourists" we had heard from last Friday or Monday.
I still think we can rally again into the end of the quarter, but let me report that I think the market is in a different place than it was two weeks ago.
Two weeks ago, we had a market getting oversold. Now we have one getting overbought. Two weeks ago, sentiment had been so gloomy for weeks, which is not the case now. Oh, it maybe got gloomy again after Tuesday's decline, but indicator-wise we're just not in the same place.
Two weeks ago the Daily Sentiment Index (DSI) was on the verge of getting to single digits. Now we have both the S&P and Nasdaq at 20. I estimate that is at least three or four bad days in the market away from single digits now.
Two weeks ago the 10-day moving average of the put/call ratio was pushing higher, on its way to a peak. Now it has rolled over and is heading down. When it peaks, the market is often gearing up for a rally.
Two weeks ago, we had some of the intermediate-term indicators oversold or at least not yet overbought. That is not the case today, as many of them are overbought or getting there.
Yet the McClellan Summation Index is still rising and would require a net differential of negative 1,100 advancers minus decliners on the New York Stock Exchange to halt the rise. To put that in perspective, Tuesday's rout had net breadth at negative 1,220.
And what of bonds, which weren't down on Tuesday? That uptrend line on the yield of the 30-year bond that I drew in last week is still present. We got the rally off 3.20%, but now there has been no follow-through. If bonds turn south and 3.20% breaks this time, it will be a fresh break. That is your line in the sand.
At the same time, the ARK Innovation fund (ARKK) remains in the trading range it has been in for nearly two months.
Let's see how these stocks handle the upcoming overbought reading.
