For the first time since the rally began, I noticed several folks concerned, or at least somewhat worried, about the underperformance of last year's winners. There were questions on the semis, Google (GOOGL) and Netflix (NFLX). So think about that for a minute: Isn't that the inverse of last year? (Google is part of TheStreet's Action Alerts PLUS portfolio.)
Last year, those favored few were the go-to stocks, but this year they have lagged. If you look at the chart of the S&P relative to Nasdaq, you can see last year it was mostly in a downtrend. In late December/early January, that changed when the S&P began to outperform in a major way. Since the February low, Nasdaq has done better than the S&P.
In early March, we saw the ratio tick up somewhat, but by April it was pushing lower once again. In the past two weeks, not only has the ratio begun to move up again but it made a minor higher high this week. I now have my eye on that mid-March peak in the ratio (just shy of 0.428). A higher high over that level and won't it start to look like a somewhat similar move to January?
Here is the chart of the S&P, so you can see what I mean: Once that big decline began in January, the S&P actually outperformed. Despite the decline in the market, it held up much better. So a higher high in the ratio now is worth your attention.
I will continue to focus on the Overbought/Oversold Oscillator. It moved up again Tuesday. I expect the market to reach an overbought reading again sometime between Wednesday and Friday. If the Oscillator makes a higher high, then there are no issues. If it makes a lower high, then we have our first real negative divergence in terms of momentum.
The number of stocks making new highs is still below the 218 peak reading of a few weeks ago, but at 192 new highs on the NYSE, it's improved. If we can't see more than 218 new highs by the time we get overbought later this week, then I will call that a negative divergence as well. However, breadth remains strong and there are no breadth divergences.
On the sentiment side of things, we keep hearing how this is the most hated bull market. The Daily Sentiment Index shows bulls at 85% for the second day in a row and the third time in a week. This means 85% of the folks are bullish, which if my math is correct means only 15% are bears.
If that is not enough, then check out the Investors Intelligence readings from this week. With 47.7% bulls, it is the highest reading since before the August swoon, although we were higher before then. The bears at 21.7% are the fewest since last summer as well, although bears did sink down to 13% last spring, so while these numbers show a big shift, they are not extreme. Not yet, at least.
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