To reiterate what I posted intraday Monday, folks had a major change of heart when the rally came: The put-call ratio slid to levels not seen in nearly two months. Last week, by contrast, it had registered above 100% for three days in a row, and it was above 90% the other days.
The total put-call ratio was at 75%, its lowest level since Oct. 2. The equity put-call was at its lowest since Oct. 8, coming in at 56%. I don't know about you, but I much preferred it when we had a day like Friday and the put-call ratio stayed high throughout the session. Such quick acceptance of a rally is not what fuels markets higher.
So let's call this a short-term negative. In my view this can be relieved by a down day or two -- that, or some backing and filling, is really what this market needs. The surge was too much, too fast, and it got the S&P 500 to resistance in a hurry -- which we can see on the chart below. Further, it seems if the market does some work on the downside, or even sideways, the S&P could end up with the right shoulder of a head-and-shoulders bottom.
In sum, the market is at resistance, and there was some giddiness Monday, but stocks are not yet overbought. So, after some backing and filling -- or pulling back -- we should see another rally attempt.
In the meantime, I was asked to update my view on gold. When we last looked, the yellow metal was priced around $1,675 per ounce, and I noted that it most often spent time going sideways to build a base. If we disregard that spike down to $1,675, we see it has done very little in the last four weeks. Sure, if gold gets through the $1,730-to-$1,740 area, it would form a miniature breakout of a mini head-and-shoulders bottom. But I keep asking myself why it didn't break out Monday when it had the chance.
I am not bearish on gold at all, and I would respect a breakout, but at this moment I have no strong view as to whether it will get going from here. If it does, I will not fight it.
As for oil, I am disappointed it never broke the $85-per-barrel level. I had had a target near the $82-to-$83 area dating back to August, when I turned bearish on crude -- so I missed the low. I actually liked the action here Monday -- because, even though oil is at resistance near $89 to $90, it crossed a downtrend line. If we see some sideways action or backing and filling from here, I think oil can get back above $90 and make an attempt toward the $94-to-$95 area.