Let's go back to the notion of a whoosh.
In a true whoosh, the market gets so cleaned out, all the selling is finished, such that the resistance overhead is minimal. That is clearly not the case in this market. It remains an either/or market. And I am still in the camp that growth stocks should see some rotation back to them.
Let's first note interest rates. They have been steady for months. And as I noted last week, it seems for now that the inflation obsession has tapered off somewhat. The Barron's cover, and all the chattering, hasn't made interest rates climb and many of those speculative moves in the commodities have come off the boil.
Then there is the dollar. The U.S. dollar sentiment is quite bearish. Using the Daily Sentiment Index (DSI), it didn't get to a single-digit reading last week, but it did get to 13. It is now 16, so if it does plunge much more, the sentiment is sure to get extreme. That makes me think that if the buck can rally, even in the short term, it too takes the pressure off the inflation story.
Then there is the SOX, or Semiconductor Index. We all know about the shortage of semiconductors, but the SOX has been heading down for six or seven weeks already, and quite frankly has gone nowhere since January. It did not make a lower low last week, and isn't it possible that on a very short term basis it is forming a small head and shoulders bottom?
Moving on to the ratio of the SOX to Nasdaq. That looks similar to the SOX itself, except that the semis really outperformed last week -- the first time they have done so with the exception of a few days in early May. This time they did so from a (minor) higher low. The ratio would need a higher high to tell us there is a short term trend change but I'm watching for that.
The National Association of Active Investment Managers (NAAIM) lowered its exposure to 44 last week, the lowest since March 2020 (it was at 10 then). I believe this is generally reflective of its participation in growth stocks. They can and do change rapidly, but as of now their exposure is low.
I want to leave you with a five-year chart of the 20-day moving average of volume on Nasdaq. Last week we discussed all the speculation that has slowly come out of the market. I think this chart does a good job showing it.
Look at the steadiness of volume for the years prior to March 2020. Then look at the surge in volume and the peak in February of this year at nearly 8 billion shares.
Keep in mind this is a 20 day moving average so that wasn't one or two readings up there, it was many. But now volume has averaged 4.5 billion over the last 20 days. My guess is it will eventually come down even more but to me this shows the rise -and the fall-in speculation in the market.