I don't believe I have ever seen such a wide swing in sentiment in the course of 24 hours, but I think that's what happens when the S&P 500 has been in the same 30-to-40-point range for six weeks. Here is the chart of the S&P from early September. As you can see, it's gone up and down multiple times.
I think that, when the range is so narrow, folks tend to get bullish as soon as the market rallies off a low -- and get bearish as soon as it drops from a high. When the indices hover at the high or the low, meanwhile, people will vacillate back and forth quite fast. The best example I can give is that, on Friday, the put-call ratio closed at 105%, the highest reading we'd seen since Aug. 30. Then, on Monday evening, the put-call dropped to 77%, the lowest reading we've seen since Oct. 2.
You can see what happened after that point: The market rallied for two more days, and then down it went. But keep in mind that this is all within the context of essentially a roughly 30-point trading range on the S&P. When we see such a vast swing in sentiment despite the market the market not going anywhere, probably tells us that sentiment will go right back to bearish if stocks slip Tuesday!
What I thought was so fascinating about Monday's action was not what transpired in stocks but, rather, what was happening in the precious metals. Granted, I have been looking for a selloff in gold and silver, so this wasn't a surprise to me. However, I simply do not know where the selloff came from. What was the news? There was none that I can see. It wasn't a rise in the dollar, since the greenback was essentially flat all day. No one seemed to have a good reason for it, and yet it also seemed to bother no one. It was as if the decline came in a vacuum, unnoticed by so many who might usually fuss about it.
If you turned the chart of gold upside down, you'd want to buy that rounding bottom. It is my view that the chart has some support in this general area and could/should bounce -- but it ought to be sold into the first uptick. I think it will eventually make its way toward that lower line, somewhere between $1,700 and $1,725 per ounce.
On silver, I continue to look for a move in to the $31 area, where a similar uptrend line comes in.
I was asked to take a look at the emerging markets. I think China is in much better shape, but it seems everyone is now on that bandwagon. So I wondered to myself: Why is it that no one talks about Brazil anymore? Did we lose the B in BRIC (Brazil, Russia, India and China)?
iShares MSCI Brazil Index (EWZ) looks to me as if it is rounding under and trying to hold that line. A move above $55 might even get others to notice it!