Before I begin, I want to wish everyone a happy Veterans Day. To all who have served, thank you from the bottom of my heart. I want to start with a short story.
Many years ago when I lived in Singapore, U.S. military ships would stop in on their way between the Gulf and Japan to resupply. The American Association would send out an email asking if anyone in the community would like to entertain the troops, while they were in town. Several times my husband and I had Navy personnel to our home for dinner. Those times are some of my fondest memories of living overseas. I am grateful for them.
Now for the markets. We remain in an either/or market. Either mega-cap tech -- which is quickly becoming just "big cap" tech -- rallies, or everything else does. Or vice-versa. And despite the approximate 6% decline in Nasdaq from Monday morning's high to Tuesday's low, very few stocks have actually broken. Let's look at a chart of the Invesco QQQ fund (QQQ) and of the Russell 2000 fund (IWM) .
Both of these exchange-traded funds have spent the time between August and this week in a very wide trading range. IWM broke out this week and QQQ did not; rather it remained in the trading range. If you are the type who likes to play in QQQ names, and you're upset with this week's action, please stop and understand that the move in the second half of August (blue arrow) was awful for the "everything else" stocks, while they got to watch the QQQs party. That's the either/or market.
Markets shift and trends change. But despite that, the IWM names did not participate in August, they did not break down. And despite that the QQQs have not participated this week, they have not broken down. Do the QQQ stocks look toppy? Yes. But until there is a break, it looks to me like it's a giant trading range.
I still believe we are set to get overbought sometime midweek this week. I have my eye on the Thursday to Monday time frame. You will see the Oscillator finally moved up. I expect it will peak either Wednesday or Friday this week. That is the just the math.
And sentiment has gotten a bit more effusive. Monday's equity put/call ratio was .37. That was the lowest reading since June 8, which was a peak in the market. Wednesday morning we'll see if the Investors Intelligence bulls are in the upper 50s or if they made it to the 60% mark. But in the meantime the Daily Sentiment Index (DSI) for the Volatility Index is now 10. That is enough for me to think the VIX will move up within the next week. If it goes to single digits in the next few days, I would think volatility is going up decisively next week. In other words, don't get too comfortable in the market right now.