Seems Like We Are Getting Close to a Rally

One of my favorite things about markets is when stock folks tell me it’s all about the bonds. I mean it usually is about interest rates, but you never hear that when stocks are going up, only when they go down. When stocks are going up, most equity folks don’t even bother looking at bonds.

Bonds rallied on Friday. So now my inbox is filled with ‘it’s all about the dollar’. And once again, this is true, but once again, when equity folks are fretting more about interest rates and currencies than stocks you know they are concerned.

Of course we know folks are concerned. Stocks started acting poorly in late July. Nasdaq ran another 5% after that, but it didn’t mean the market improved, all it did was suck the Wall Street Journal into telling us Nasdaq was in a new bull market. And now we’ve come back down to the June lows. Sure we might break them, but let’s examine where the market is.

It will be oversold midweek this week, using both my short and intermediate term Oscillators. Using the Volume Indicator we are now at 41%. This might lose a few more points as the week progresses but how much lower is it going to go? I have never seen it break the upper 30s, even in bear markets.

The number of stocks making new lows has expanded, although Nasdaq is still below the peak reading from last spring. That is bearish (this is a bear market) but the Hi-Lo Indicator for the NYSE is at .05. For Nasdaq it is at .06. They can get to zero, but they cannot go below.

Of course sentiment is terrible. At least back in June, energy was still cranking, now it is not. At least in June many of the commodity names were still working. Now they are not. Perhaps that is why the Daily Sentiment Index (DSI) is at 5 for both Nasdaq and the S&P 500. This indicator is not perfect (when you find me one that is, I hope you will share it with me!) but let’s look at the last four times we had readings of 4.

In 2015-2016, it was spot on at the August low (point A on the chart) in 2016 It was a week and about 5% too early.

In the next set of instances, the timing was perfect at the December 2018 low but at the March 2020 low it was about a week too soon and missed that last whoosh down.

But now I can add that the Citi Panic/Euphoria Model moved to Panic for the first time since the bear market began. Again, it can go lower, but why can’t we have a countertrend rally in October?

Folks have been asking for the put/call ratio to scream higher and on Friday the Equity put/call ratio pushed up over 1.0 for the first time since March 2020. Oh and the DSI for the buck is at 93 and the currencies against it are all at single digits except for the Euro which is at 10. I would remind you that the Yen got to 7 in early September. It just seems to me that we are getting awfully close to a rally.

Finally, to all who celebrate Rosh Hashona, Happy New Year!