Monday was certainly a day for stock pickers. And it was much different picking than last week when we had the Haves and Have Nots. It seems folks have gone from loving the semiconductor stocks to absolute aversion to most of them.
Back in February and March I turned negative on the Semis (SOX) because they were overbought. I was wrong. The SOX rallied from 1400 to 1600 in the ensuing month. But notice that it turned into a giant roundtrip as it now seems that was the last gasp rally.
There is some support for the SOX in this 1300-1340 area so an oversold bounce is likely later this week but is there enough hate for them yet? Is there a laundry list of reasons out there telling us 'why we can't own them'? I suspect that laundry list is being made as I type this.
Just take a look at Intel (INTC) . Remember when everyone loved Intel? Until they didn't? I haven't seen anyone fuss over Intel specifically yet but if they do in the coming days and the stock is down in that $40-$43 area I'd probably like it for a trade, as it would seem awfully oversold.
Aside from that the breadth of the market wasn't bad. To put it in perspective, Friday saw the S&P lose 16 points and net breadth on the NYSE was -1400. Monday the S&P lost 19 points and net breadth was only -1000. So the selling was concentrated in certain groups, not widespread the way it was last week.
If we go back to the chart of the TRIN (Trading Index) and its 10-day moving average we see that it has rolled over. You can see this is a form of an oversold condition in the market. The red circles on the TRIN's 10-day moving average come close to the red circles on the chart of the S&P. Not every oversold reading leads to a spectacular rally, but we do tend to see an oversold rally out of it.
My biggest disappointment came in the form of the put/call ratio as it fell under 100% for the first time in nine trading sessions. For all the fear over China and technology chatter, it was not evident in the options ratio. What's more it didn't fall to a reading in the 90s but rather all the way to 85%, which I deem a neutral reading.
However, what it did manage to do is reverse the 10-day moving average of this indicator from up to down. Typically a turn down has led to an oversold rally.
So yes, as ridiculous as it sounds in the face of two down days and a lot of give back in the market, I still think we get another oversold rally midweek this week.