Many times, you just have to sit back and marvel at market sentiment. Just about a month ago, European Central Bank President Mario Draghi told us he would do "whatever it takes," and everyone got pumped up. Then, on Wednesday, we heard about the ECB's new bond-buying program and it was met with a giant yawn. Sure, it's possible that Draghi's definition of "whatever" is different from that of investors -- but, considering the S&P 500 was at 1400 then and it is at 1400 now, it is incredible to see the change in sentiment based on this one "indicator."
Now, that is anecdotal. What isn't anecdotal is that the Investors Intelligence readings saw its bullish percentage move to 51% -- the highest level since the spring. What's even more incredible is that, nearly four weeks ago, the S&P was right here at 1405 and bulls were at 43%. Today it stands at 1405 and bulls are at 51%.
In that time the Select Sector Industrial Select Sector SPDR Fund (XLI) has dropped about 4%. That cannot be what turned folks bullish.
Lest you think it was those great-acting drug stocks, I see the Health Care SPDR (XLV) was at $38.75 in July and now stands just shy of $39, a move that barely registers on a percentage basis.
I will grant you that Nasdaq has gained 2% in that time, although the Philadelphia Semiconductor Index (SOX) has also lost 5%. China can't be what has investors excited. Meanwhile, the European markets, while up from their lows, are similar to the S&P -- that is, pretty stagnant.
My point is that, while higher prices are typically what get folks turning bullish, that doesn't seem to be the case this time around. Perhaps it is as I noted the other day: The talk has gotten them bullish, and not the action.
As for the market's action in the last two weeks, have you noticed the series of lower highs in the S&P for the last week and a half? I have yet to see this downtrend line discussed with much regularity, but we can expect it will become a topic of discussion if the S&P moves above the line, or below the recent lows just under 1400.
It's possible the ECB's action Thursday will shift this pattern -- and, if not, then perhaps Friday's employment report will.
As for the XLI, you can see there is a lot of support on the chart as it heads into that $35.50 area, so a bounce of some sort should be in the offing. Keep in mind that the Dow Jones Utilities Average continues seeing lousy bounces, and so has the Dow Jones Transportation Average -- so the theme of August, and so far into early September, has been crummy bounces. I suspect that that will remain the theme in this mixed market, unless the S&P can rally above that downtrend line.