Still Too Overbought

 | Feb 26, 2014 | 7:30 AM EST
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Last week I said that, to me, Facebook's (FB) purchase of WhatsApp reminded me quite a bit of what we saw in 1999. It wasn't so much the way the stocks were acting, or that Facebook paid $19 billion for what is essentially a texting service. It was the contrast of that valuation -- and that of other tech stocks -- to the low valuation of food and drink stocks. As I said, I have not witnessed so much disparity between these two groups since that 1999-to-2000 period.

At this point, several others have made some sort of comparison to the mania we saw in 1999, including Jim Cramer. I want to be clear that I don't believe the current situation is as big a craze as that of 1999 and 2000. Back there was a mania in hundreds of stocks, while now it's limited to a smaller, more selective group.

Heck, I can remember that, in January 2000, the woman sitting next to me on an airplane was starry-eyed because "The Nasdaq was up 85% last year." She looked over my shoulder as I thumbed through my hand-drawn charts, and she praised that of Dell. I remember asking her if she was concerned about buying too high. "Oh no," she responded. "They always go higher."

I don't think that same sentiment exists today. What I'm seeing now is more along the lines of, "They always get saved." Folks don't want to buy high these days, unlike in 1999. They want to buy low, with the thought that others will eventually come around to those names again. So, yes, it is different in that respect -- but, then it is always different in some fashion, isn't it?

What is fascinating, though, is that sentiment is all over the map. I recently noted that last Friday's ETF put-call ratio came in at its lowest reading since Dec. 31 and Jan. 2, showing an awful lot of giddiness. But stocks then reversed downward Monday, to close well off the highs, and that action took the wind out of the bull's sails -- much as bears converted to bulls Thursday after the market underwent a positive intraday reversal.

Further evidence lies in Tuesday's ETF put-call, which registered at 173%. This isn't a very lofty reading in and of itself, but it is the ratio's highest level since mid-November. (There was also a reading of 169% on Jan. 31, which was followed by a decline of merely another day or so.)  All I know is this market has folks highly emotional. Perhaps that's what happens when the indices rally and then sit here: Folks aren't quite sure whether it's a breakout or a failure.

I maintain that the comparison with late-July remains valid. At that point, market chopped with swings for two or three weeks, had one final fling upward and then back down. At the current juncture, stocks have been in chop for just over a week now. As I explained Tuesday via the breadth numbers, the rally has been getting narrower -- which is to be expected after the run we've seen. I think the market is still too overbought to go anywhere special on the upside.



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