Have we converted all the bears from last week to this week? Or are there still a few left?
I wrote exactly one week ago that the equity put/call ratio had soared to 75%, the highest level we'd seen in a month. Thursday's action brought about almost the exact opposite. The equity put/call ratio, which has plunged into the 50s for four of the last five trading days, ended the day at 51%. That is the lowest reading since Jan. 26.
If Jan. 26 rings a bell, it was the high before the plunge in late January. Now I grant you, that day saw the equity put/call ratio at 49% and while it doesn't seem like it's a huge difference, a reading under 50% is bearish while a reading over 50% is just a yellow light. Either way, it shows you the change in sentiment.
Now let's talk about the overbought condition. The 30-day moving average of the advance/decline line is now overbought. The Oscillator, which is shorter term, still looks like we should see a back off and another push up into a "maximum overbought" next week. The Nasdaq Momentum Indicator shows something similar, but again, until we are a day or two away, that can change. As of now, it is slated to peak midweek next week.
Now, let me show you another indicator that shows us into overbought territory -- the McClellan Summation Index for the Nasdaq, where rising volume is bullish for stocks. However, when we do an exercise to say: "what it will take to turn it from the current up to down?," we discover that it will take a net differential of -2 billion shares. That's a lot. In fact it's so much we haven't been at such an extreme since just after the 2016 election (green arrow on the chart):
If you look at that time period, you will see we pulled back and rallied again (sound familiar?). Last fall saw a similar reading (although not as extreme), and you can see we saw a pullback in the market after that (the gold arrow above).
How else can we tell we're overbought? The number of stocks making new highs did not increase on Thursday, indicating a stalling-out (at least to me):
Also notice that despite the Russell 2000 making it back to the old highs, relative to the S&P 500 it has lagged this week. The ratio of the iShares Russell 2000 ETF (IWM) to the SPDR S&P 500 ETF (SPY) has been heading down all week, whereas it spent the first week of May on the upside:
Finally, let's talk about the VIX. I have said that I'm looking for volatility in mid-May. The VIX's chart is a bit odd after last Friday's action, but it seems now that everyone thinks it is going under 10 again.
How do I know this? The Daily Sentiment Index for the VIX ended the day at 10. Remember: Under 10 and we've gotten extreme. So, I think we get some volatility in the next week or so.