new york stock exchange trader
Market
A week ago, I touched on what I refer to as the “last mile” regarding market emotions. Moving from a 40 to a 20 DSI feels manageable, but that final stretch to single digits usually drags on longer.
I believe there’s a reason for this. I mean, would anyone really call a 7% drop a reason to give up without going further down? It often takes something quite drastic for people to rethink their stance.
Last week, the S&P was down around 2%, but this week, the Russell 2000 saw some gains. Is there a shift in sentiment reflected in this divergence? Well, sort of. The S&P’s DSI currently sits at 15, up slightly from 22 a week ago, while the Nasdaq’s now at 14, which is also up from 25. Many other sentiment indicators have shifted similarly, trending bearish, albeit not drastically.
This leads us to the question: do we need to see extreme results? Not necessarily. Nonetheless, some indicators suggest we’re nearing a limit, although we’re not quite through that last mile yet.
Regarding that DSI I mentioned, I’d like to see at least one index, either Nasdaq or S&P, hit single digits. Last April, the Nasdaq dipped to 9, while the S&P reached 10. The VIX’s DSI, at 77, is notably high for this stock; it rarely hits 90.
Turning to sentiment, there may be a significant shift in the Investors Intelligence survey this Wednesday. I always prefer to see more bears than bulls, ideally with a ratio of bulls to bears below 1. Right now, it stands at 1.57. While it’s come down from 4.2 in early February, it still can’t be labeled extreme. I don’t expect it to drop below 1.0 this week, though it might get close.
I’m eager to see the VIX surge. Just look at the chart; it’s hovering, ready to leap. All it needs is a little push.
Some indicators suggest that the NASDAQ Hi-Lo is currently oversold, sitting at 0.18. The NYSE Hi-Low Index remains at 0.35, indicating the need for further downward pressure. There’s a disconnect between large and small-cap indices; the S&P dipped 2% last week while the Russell index gained.
The volume indicator is not showing anything extreme, with some days seeing a drop to about 65%, maintaining at 48%. In bull markets, 47% indicates oversold conditions, whereas bear markets usually linger in the low 40s. So, while we’re close, it’s not quite there yet.
The 30-day moving average of the advance/decrease line still indicates oversold situations around mid-month (April).
Interestingly, I was anticipating Wall Street firms to lower their S&P price targets, but that didn’t occur. In fact, one firm even raised their targets last week. Now, late last week, Citigroup reduced its equity allocation, so we’re seeing some movement.
The first two days of the week coincide with the end of the quarter, followed by Wednesday, typically a time when the market tends to rise. Quarter-end rebalancing could be influencing trends here.
You may recall that just over a week ago, I performed a “what if” scenario for the Russell Momentum Indicator, indicating an oversold Russell but a Nasdaq that wasn’t. If that method drives the Nasdaq down roughly 1000 points over the next 10 business days, an oversold situation may arise. Interestingly, even if prices drop, the indicator can increase.
Keep in mind that this isn’t a precise timeline but more of a rough estimate, likely spanning from mid-week of this week to the same period next week.
The crux is that we want to see the market move into that “last mile,” and I believe we’ll gather enough indicators in the next week or two to support a decent rally.
New Ideas
I’d like to revisit the three half-charts I’ve been tracking. Nvidia (NVDA) recently crossed 170 and found support at 165. I was expecting some excitement around the 170 mark, but it didn’t materialize.
Broadcom (AVGO) continues to seem like an elusive target for me. I feel that their breakout will be the final step. It’s worth noting that both of these stocks are experiencing peaks. So while a panic breakout could boost trading, it doesn’t necessarily signal medium-term bullishness unless these levels are reclaimed quickly.
Advanced Micro Devices (AMD) is actually performing better than the other two, though it still has a breakdown looming about 15-20 points below.
Today’s Indicator
The Hi-Lo indicator has been previously discussed.
Q&A/Reader Feedback
Is it time to reassess Pepsi (PEP) ? I think the 145-150 range is probably an appealing price, but I might sketch something like in blue.
It’s hard to say what it might take to make Disney (DIS) appealing again. It’s a solid chart, but it’s quite oversold right now. Closing the gap from last year, there’s some support in the 88-92 range, presenting an opportunity for an oversold rally.
Intel (INTC) has held up relatively well, like many semiconductor stocks. If I can just push through that last mile, I might see it break above 42.
Related article: Top 3 Tesla stocks are sold short as the downtrend continues
