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This Is a Crash in Slow Motion

Or we could call it a relentless decline, either way, it is highly unusual to get as oversold as we’ve gotten and not stage some sort of oversold rally that lasts longer than a day.

The Market

I’m going back to sentiment again. Because this morning we got a read from the American Association of Individual Investors.

The bulls fell 9 to 30%, the bears soared to 51%. Recall last week, they were up 8 so we’ve essentially done a round trip, we have not plunged. The good news is that bears soared and we now have more bears than bulls. The problem remains that it takes time for the intermediate-term indicators to move, and so when we use the four-week moving average of bears as our guide, you can see it is still under the October high and well below the December 2018 peak reading.

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Please also note that whether or not this lines up with lows, it’s that the level really does not show panic yet, not on an intermediate-term basis. It’s always hard to tell with so much data on the chart.

Sticking with the intermediate-term and sentiment, the equity put/call ratio’s 10- day moving average has moved up a lot, but the intermediate-term’s 30-day moving average is similar to that four-week moving average of AAII bears: It is still lower than October and December 2018.

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Some might say that it has been trending lower for years and they would be correct, but please look at how low it got in January/February. We simply do not unwind readings that low in a few weeks. No matter how much the market has crashed.

And, yes, I would officially call this a crash. It’s a slow moving one in that we haven’t gotten the decline in one day. Perhaps I ought to call it a relentless decline. It is highly unusual to get as oversold as we’ve gotten and not stage some sort of oversold rally that lasts longer than a day. But then I suppose the relentless rise from October through February with no real correction was highly unusual, as well.

On a very short-term basis, once again the Daily Sentiment Index has fallen to single digits for Nasdaq and the S&P 500. They are both now at 5. With Friday coming, it’s hard to imagine we can be up, especially since green Fridays have been so rare in 2020. Also the DSI for the Volatility Index is back over 90, this time at 93.

About the only good news I can offer is that SPDR Barclays Capital High Yield Bond exchange-traded fund (JNK) - Get Free Report; iShares iBoxx High Yield Corporate Bond fund (HYG: NYSE); and iShares IBoxx Invest Grade Corporate Bond Fundd (LQD) - Get Free Report did not close on their lows. Their action is worth paying attention to.

New Ideas

I have had a lot of questions about the utilities – or Utes – lately. I have not been a fan of them for a while. Thursday they were actually worse than the overall market. The only thing of interest I see on the chart is that if I draw the line a bit thicker this decade-long trend line comes in right around here.

They have not rallied at all with the bond rally. At some point they, along with the rest of the market, will snap back and snap back quite well. But one reason we have been successful buying Utilities SPDR (XLU) - Get Free Report over the years is that the Utes tend to form small bases along the way and so I feel there will be time for us to see it.

Should the Utes break this line by a wide margin (let’s call it 3%), I would consider that quite bearish for them.

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Today’s Indicator

The put/call ratio is discussed above.

Q&A/Reader’s Feedback

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There are no more measured targets for Boeing (BA) - Get Free Report. The best we can say is it came back to the lows of 2017. Catching a falling knife in this market has sliced you up, so if this is to be a – or the -- low it would need a long period of base building. If it rallied to $220, I’d sell it there.

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The best we can say about Amazon (AMZN:Nasdaq) is that it came down to prior lows. If it can rally back to $1,800 it’d be a good place to sell it. I’d say it should rally from here, but so far any “should rally” has been non-existent.

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United Parcel Service (UPS) - Get Free Report had a wild day on Thursday. Did it exhaust itself? If there is follow-through to the upside I’d have to say, yes. If there isn’t, then know there is still an unfulfilled measured target around $65.

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Dropbox (DBX:Nasdaq) is trying to bounce off this channel line. I would only trust it if it can get back over $17. And if it can do that then the gap fill at just shy of $19 would be a place to sell it. I am intrigued that it, like UPS, tried to die and couldn’t Thursday. My problem with it is that there is an unfulfilled target around $13, so if it can’t get going on the upside soon it’s going down there.

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