Sentiment Does Matter for the Market

 | Jun 27, 2014 | 6:13 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:








I witnessed a discussion on Thursday about sentiment in the market. This was before the market opened, so we hadn't swooned yet. Here's how the discussion went (approximately):

"Sentiment doesn't matter in the market anymore," one person said. "Why not?" the other asked. The answer, it seemed, was laid at the feet of the Fed: "with a ZIRP policy, stocks don't go down, so sentiment can stay elevated for extended periods of time."

While I did not join the conversation myself and opted to sit and just listen to it, I found myself wondering how it was that Nasdaq had managed to go down by about 10% this spring -- and the individual stocks by leaps and bounds more than that -- if the Fed's policies did not allow for this. Clearly, this person was either dismissing the spring swoon in small caps and momentum stocks as they had since recovered somewhat, or they were referring only to the S&P. I could not tell which of these two was true.

So, of course after the market opened we swooned. I saw no other words of wisdom from this person until we had started to recover later in the morning. Then he notes that the indexes have recovered, but not individual stocks. I was dying to ask "so you mean stocks can go down?!!"

Indeed stocks can go down. Perhaps the S&P cannot, but in the past week many of those safety dividend-paying favorites have fallen plenty. Weeks ago we looked at Kellogg (K) here when I noted it started to droop and was in danger of breaking an uptrend line. There was such little reaction, I figured no one owned it. But how could that be?

Kellogg (K) - Chart

It's not as though Kellogg has fallen out of bed the way some other stocks have, but the stock is now back to where it was in early April. General Mills (GIS), the other cereal stock, has also gapped down on earnings. Philip Morris (PM) has done the same. In case you missed it, so has Conagra (CAG). None of these big cap safety stocks has managed to take the S&P down with it, but indeed stocks do go down, and dividend-paying, stock buy-backing stocks do go down. Do not kid yourself.

This brings me back to sentiment. Yesterday we looked at the 30-day moving average of the equity only put/call ratio. It has not turned up yet and, as I indicated, I believe it ought to do so sometime in early July. However the 10-day moving average of the total put/call ratio has finally ticked back up. And unless my eyes deceive me, these tick-ups from these low levels have in fact seen the S&P correct in the past year. On the chart below I have noted three such instances.

CBOE Put/Call Ratio Chart

The S&P may be essentially treading water for most of the month of June, but there have been plenty of stocks on the move within the index.

Overbought/Oversold Oscillator -- NYSE


Overbought/Oversold Oscillator -- Nasdaq

Columnist Conversations

We will take off some more risk, bank some winners SOLD PG OCT 90 CALL AT 3.3 (in at 2.90) ...
After a very calm and sedate period of volatility which saw the VIX fall not only to all time lows but had a r...
today is a good day to lighten the load and take some positions off the table. SOLD WB OCT 85 CALL AT 11 (i...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.