There was no pattern change, as the S&P 500 did not manage to close in the green on Tuesday, which means the streak of three-straight green days stays put. The S&P has not been able to get to four consecutive up days since the second week of January.
In every bear market, there is a similarity to how the hottest stocks of the prior bull market come down. I often say they come down in layers as nothing goes down in a straight line. However, it's more than that. It's that they will spend quite a number of months attempting to base before the bottom drops out again. Most of these are highly speculative stocks anyway, but the process by which they come down is the same.
For example, look at Qualcomm (QCOM) from 1999 until early 2004. See that six-month period in the second half of 2000, when the stock had come down nearly 70% already; I am certain we heard folks recommending it, because after all, it was already down 70%.
Then in 2001, it breaks down again, attempts a rally only to give way in the fall. Most of 2001 was spent trying to base below 2000's lows, a layer lower. Keep in mind that by the end of 2001 we were two years into the bear market.
Then comes 2002, when the stock then halves -- or even a bit more than halves -- again, before it spends the next year trading between $10 and $15. That's the layers. My mentor in this market, Justin Mamis, used to remind me that Memorex, one of the hottest stocks of the early 1970s, doubled three times on its way from $300 to zero.
Then there were all those stocks that were so hot but were more concept stocks than they were real companies with real earnings. I can't show you those charts because most of them have disappeared.
I thought of this today, as I looked at the chart of Rivian (RIVN) , which went from $180 to $20 and folks screamed that's enough! It was as the stock doubled. But now look at it: It has more than halved since December.
Or what about Lyft (LYFT) , which was $70 two years ago and by the time it got to 10-12 six months ago, folks thought "enough." It had a terrific rally, nearly doubling from 10. But now it is once again, another layer lower.
I suspect we're in that part of the cycle, where we will start to see some of these names just dribble lower until they languish at best. Think of Tilray (TLRY) or Peloton (PTON) . There are plenty of them out there.
Away from that, breadth was good, while the S&P 500 was down, which is a step toward some improvement. Even the McClellan Summation Index looked up. There isn't that much of a cushion, but it is the first turn up in months.
Then there is the International Securities Exchange Equity Call/Put Ratio. We looked at this chart last week using the 21-day moving average, as I noted the swift decline. Since this is a call/put ratio, the moving average will tend to move in the same direction as the market.
Tuesday's ISE Equity Call/Put ratio was 1.7, which is what caused the moving average to turn up. It is also quite a high reading. In the last year, we've had seven such readings. Notice on the chart of the S&P that all those blue arrows came at/near highs. There is a green arrow in April last year that gave us a one hundred point rally in the S&P, only to give way into yet another decline. The only time in the last year such a high ratio appeared at the lows was June.
So now we have a tug of war, does the moving average (bullish) trump the one-day reading (bearish)? Or is this like the June low? That's a tough call. Don't get complacent, especially with the Volatility Index at 20.
