On Monday, as I watched various folks interviewed on television about the market, I learned that they were all looking for a choppy or rocky July.
I guess they forgot to tell us this was the case in early July. Had they all been as cautious as they claim they were, how did we see the Investors Intelligence bulls at 61%? How did we see the 10-day moving average of the put/call ratio so low, if they were all betting on a lower market? How did the DSI for both the S&P and Nasdaq get over 90, if they were all so cautious?
I also learned (you learn a lot from watching TV!) that the majority of stocks topped out months ago! Imagine that! You mean all those days with contracting new highs meant stocks were no longer going up? Or the very much declining McClellan Summation Index meant that stocks were going down. The things we learn.
I know I jest, but mostly it's because Monday felt like the day the narratives came out of the woodwork. Monday was the day folks finally came up with a reason for why stocks are down so much. Monday was the day they made their lists. There was a lot of explaining being done.
Was Monday a great day in the market? No, it wasn't. The number of stocks making new lows expanded. Breadth was terrible. Charts broke down almost everywhere you look. And 88% of the volume was on the downside (on the New York Stock Exchange). I would have preferred 90%.
But that doesn't change that we are now oversold, especially the small caps. The Overbought/Oversold Oscillator is the lowest since March 2020 (not shown on the chart). That's good news and bad news. The bad news is that's how weak breadth has been under the surface. The good news is that's how oversold we are.
Then there is the McClellan Summation Index. It remains in its downward trend (for months now). But as of Monday, it needs a net differential of positive 5,300 advancers minus decliners on the New York Stock Exchange to halt the decline. When you consider that there are approximately 3,500 stocks that trade daily on the NYSE, that means this would need two amazing up days (for breadth) just to halt the slide. That is oversold.
The put/call ratio finally made it to triple digits as the reading clocked in at 1.02, the first reading over 1.0 since May 19. I have noted May 19 on the chart of the S&P below.
Let me note that the intermediate-term indicators still are not oversold, but if we look at the chart of Russell 2000 fund (IWM) using closing prices-only, it is interesting, considering this is where all the selling has been. IWM closed in late March at 211. In mid-May, it closed at $211. On Monday it closed at $211.
In addition, if we measure the high of the pattern at $232 and subtract the low of the pattern (green line) at $222, we get $10. If we then subtract $10 from $222, we get $212 as a measured target.
One final note, on bonds. The daily sentiment index is back at 91. I think stocks are due an oversold bounce.