Recent market movements suggest a notable shift, reminiscent of a significant seismic event in financial terms, with clear indicators emerging within three days of observing sector-specific trends. This past Wednesday, there was a pronounced focus on the Transportation sector, overshadowing Utilities, which only received a cursory mention. Interest in small-cap stocks and equal-weight indexes was evident, yet there was no widespread panic observed. The market’s resilience was partly demonstrated by the downside volume which constituted 80% of the total, significant but not reaching the 90% mark that indicates panic.
The Dow Jones Industrial Average (DJIA) has experienced sustained pressure, recording declines in five of the last six sessions, with a total reduction of over 1,500 points compared to just a week prior. This trend suggests a growing bearish sentiment among investors, although it has not escalated to outright panic. A critical question facing market watchers now is whether the DJIA and other indices are oversold.
Current analysis points to a moderately oversold condition for the DJIA. However, the after-hours trading performance of Salesforce (CRM) indicates potential for continued selling, possibly pushing the DJIA to address a gap around the 38,250 mark, with solid support near 38,000.
In terms of broader market dynamics, the conditions for a classic oversold rally are not yet apparent. Looking back to late April, the Investor Intelligence bulls stood in the low 40s, whereas now they are at 58%. Last week’s AAII bulls were at 47%, and while a decline is anticipated, a dramatic drop remains unlikely.
Further pressures are evident in the iShares Expanded Tech-Software Sector ETF (IGV), which includes CRM. The ETF is poised for further decline, potentially widening the performance gap between semiconductor and software stocks. Despite not showing signs of trouble yet, Nvidia (NVDA) has reached a significant price target, and taking some profits might be a sensible strategy in the current climate.
Regarding commodities, the Global X Copper Miners ETF (COPX) has shown signs of a faltering rally without breaching its uptrend line. A decisive break could signal a time to reconsider copper investments.
Today’s market indicator is at 53%, suggesting a tilt towards an overbought condition rather than oversold. This could inform immediate trading strategies, particularly in stocks like PayPal (PYPL), which after failing to bridge a previous gap, has sharply declined, breaking below its April low. Although slightly oversold, a rebound to near $64 could present a selling opportunity. Similarly, Raytheon (RTN) failed to achieve a higher peak last week and now suggests a potential downward correction following a subtle head-and-shoulders formation. J.B. Hunt (JBHT) is positioned for a recovery, potentially reaching up to $165, given its current oversold state.
Conclusion: With the market showing signs of adjustment, investors are advised to stay informed and cautious. The emerging trends across different sectors, especially in technology and commodities, warrant close monitoring and strategic portfolio adjustments to mitigate risks and capitalize on potential market rebounds.