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Sentiment is Not Complacent and Not Panicked

We can't call sentiment complacent anymore, but we also can't call it panicked.

The Market

For weeks now stocks have been acting quite poorly. Despite that, we have had relatively complacent sentiment in that same period of time. Last week was the first week we had an inkling that the sentiment was shifting. After Wednesday, I said I didn’t think I could call sentiment complacent anymore, but can I call it panicked? No, not yet.

I do however think we are much closer to that point than we were just a few days ago. The clearest way to see it is in the put/call ratio. Thursday it clocked in over 1.0 for the first time since early October. Friday it clocked in at 1.15 which is the highest such reading since the spring of 2020. Yes that long. The peak reading in March 2020 was 1.8 which is the highest I have ever seen it. But in the week or so prior to that massive reading it was in the 1.3 range for days and even after that peak reading of 1.8 it stayed elevated in the 1.2 range for another week or so.

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There is a lot of stuff thrown into the total put/call ratio, including all the exchange- traded funds, which means even the inverse ETFs are counted as well as the CBOE Volatility Index. So, sure maybe folks are buying calls on the VIX, but it’s generally not enough to skew the reading dramatically. However, I still like to look at the equity only since that is pure. And that chimed in at 0.74 Friday, the highest such reading since just prior to the 2020 election. So you can see how Friday was yet another sentiment shift.

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As you know, I like to look at the 10-day moving average to see when that might get extreme. The 10-day moving average of the total is finally over 0.9 so it has stretched into the area for the first time. Considering the damage underneath, I suspect it goes higher before this decline is done. A week ago it was in the low 80s.

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The 10-day moving average of the equity put/call ratio is also finally pushing up, as it finally crossed the 0.5 threshold.

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Considering the damage that we have seen, it seems to me we should see the Investors Intelligence bulls in the low 40s before we know it’s extreme. And it would be terrific to see the National Association of Active Investment Managers Exposure Index at least in the 50s. But these all began heading in the right direction last week.

In terms of oversoldness, we are grossly oversold on the shorter term metrics. My own Oscillator actually made a higher low on Friday, that’s how oversold it is, even the decline couldn’t make it worse.

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The Russell Momentum Indicator really starts to move this week. When I walk it down another hundred points, all it does is go up. It doesn’t even hesitate. Rather it just spurts upward.

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On a more intermediate term basis, the Nasdaq Hi-Lo Indicator is at 14%. The NYSE is at 24%, so the former is oversold while the latter is still a few sessions away from getting into the zone. The chart is shown below.

The Volume Indicator which is shown here Wednesday evenings is also finally on the move as it made a lower low this week (than the fall low) and now sits at 43%. You can see this is the lowest since it tagged 38% in March 2020. I suspect it falls some more this week, getting more oversold but even in bear markets the upper 30s/low 40s is about as oversold as it gets.

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The number of stocks making new lows on Nasdaq continues to rise but the NYSE — for now — had its peak on Nov. 30 with Friday’s reading about 80 fewer.

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There are many flat support lines out there, with the one on the iShares Russell 2000 index the most obvious. For now it has held. I have always been a fan of breaking an obvious level to get some real panic and a reversal from that. With the market as oversold as it is I don’t know if we will get that but I keep thinking about the hysteria we saw when IWM first broke out to the upside in early November (arrow on the chart) and I wonder if a break of 210 would be what it takes to push all that no longer complacent sentiment to panic. It’s hard to know because as seen above, the Russell is so oversold already so maybe it just gets saved here.

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New Ideas

I want to point out that we can see the rise in bearishness in the volume of the Power Shares QQQ Trust. This ETF traded just over 100 million shares on Friday, the highest since last spring. Right now, the QQQs are too far away from that trend line for us to think any bounce can be long lasting but you can see that as – or if — the QQQs get to that uptrend line, it would be a good spot to buy. It may take a few weeks.

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Today’s Indicator

The Hi-Lo Indicator is discussed above.

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Q&A/Reader’s Feedback

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

Amgen (AMGN:Nasdaq) is desperately trying to hold with its attempt at a double bottom at $200. If folks are flocking to safe havens then AMGN would qualify so the risk/reward isn’t bad here. Under $200 and you know you’re wrong.

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If JP Morgan (JPM) - Get Free Report can’t hold and bounce from here then there are layers of support all the way down, but I would think that $145-$150 would be where it goes in the next month or two. So holding here is key for it.

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Live Nation (LYV) - Get Free Report achieved its upside measured target of $115. It also completed the 90/100 rule (90% of the stocks that make it to 90 will make it to 100) so despite the fact that it has decent support in the $95-$100 area, I’m not so sure it is a great buy here. I’d wait to see if time heals it by going sideways for a while, otherwise I’m inclined to take profits.

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Simon Property Group (SPG) - Get Free Report looks to me like it finally did something wrong by failing to make a new high and then coming down. It has filled that gap around $150, which is a short term positive and it is still well above support which is $135-$140. I suspect the best case scenario is that it has to go sideways now as it did from June to October. This is the sort of stock that is vulnerable to more profit taking.

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Mastercard (MA) - Get Free Report achieved its downside objective off the top that was created from the breaking of that black line. It has bounced from that blue line since September so it ought to do so again. But there is no base to speak of so we’re just talking about a trade for now. What you do not want to see is it trade back under that $310 area.

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Tyler Technologies (TYL) - Get Free Report came close to achieving its upside measured target of $570-$580. It’s got some decent support in the $480-$490 area so my inclination is to see if it can come down there and hold.

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