Now That's What You Call a Rally

 | Sep 12, 2017 | 6:00 AM EDT
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Now that was a rally! And it got folks all excited, too. I saw folks who are typically bearish loving the rally. I saw folks who hated the banks last week lauding them on Monday. You know what they say, there is nothing like price to change sentiment.

Before we get to the statistics for the sentiment gauges, let's talk about breadth. It wasn't great, but good enough to get the job done. By that, I mean the cumulative advance/decline line made a new high. The McClellan Summation Index is still rising. And the number of stocks making new highs improved.

The number of new highs for the NYSE was far better than a week ago, but it's still much lower than July or June. Monday's rally saw 210 new highs on the NYSE. In July there were 250 and June had 340 new highs, but at least there were more than a week ago.

Nasdaq saw the most new highs since early June. Tuesday there were 240, the most since early June when there were 344 new highs. It therefore is more than we saw in the entire summer.

However, we are going to be back to an overbought reading in the next few days; that's what happens when we don't get back down to a decent oversold reading; each rally gets overbought much quicker.

But let's get back to sentiment, which had some excessive readings. The ISE call/put ratio was 208%. I had to go all the way back to mid-May 2015 to find another reading over 200%. In fact, since 2008 there have only been nine other readings over 200%. Three of those were great sell signals. The aforementioned May 2015 was one. July 2011 was another and the last day of December 2008 was the third.

One of the readings was on the exact low: March 9, 2009. Two other times the market was in an uptrend and kept going. The bottom line is that out of the nine instances, only three times did the market not correct back down in the ensuing weeks.

Then there is the put/call ratio for the ETFs, which fell under 100%. We last had such a reading on Sept. 1, and if you will recall, the next trading day saw the S&P 500 down nearly 19 points and Nasdaq lost nearly 60 points. The reading under 100% prior to that was July 26, the peak before the August decline.

Let's also not forget that last week we had that an outsized reading for the VIX put/call ratio when it came in at 190%. It seems to me there have been far too many outsized readings for these options ratios in the last week or so for us not to see some bout of volatility in the next few weeks.

One final note on the currencies: I saw many folks shrug at the move in the dollar. I thought we'd see more excitement over it. I still believe it's a countertrend rally, but the fact that it got so little attention has me interested.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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