I witnessed a discussion on Thursday about sentiment in the market. This was before the market opened, so we hadn't swooned yet. Here's how the discussion went (approximately):
"Sentiment doesn't matter in the market anymore," one person said. "Why not?" the other asked. The answer, it seemed, was laid at the feet of the Fed: "with a ZIRP policy, stocks don't go down, so sentiment can stay elevated for extended periods of time."
While I did not join the conversation myself and opted to sit and just listen to it, I found myself wondering how it was that Nasdaq had managed to go down by about 10% this spring -- and the individual stocks by leaps and bounds more than that -- if the Fed's policies did not allow for this. Clearly, this person was either dismissing the spring swoon in small caps and momentum stocks as they had since recovered somewhat, or they were referring only to the S&P. I could not tell which of these two was true.
So, of course after the market opened we swooned. I saw no other words of wisdom from this person until we had started to recover later in the morning. Then he notes that the indexes have recovered, but not individual stocks. I was dying to ask "so you mean stocks can go down?!!"
Indeed stocks can go down. Perhaps the S&P cannot, but in the past week many of those safety dividend-paying favorites have fallen plenty. Weeks ago we looked at Kellogg (K) here when I noted it started to droop and was in danger of breaking an uptrend line. There was such little reaction, I figured no one owned it. But how could that be?
It's not as though Kellogg has fallen out of bed the way some other stocks have, but the stock is now back to where it was in early April. General Mills (GIS), the other cereal stock, has also gapped down on earnings. Philip Morris (PM) has done the same. In case you missed it, so has Conagra (CAG). None of these big cap safety stocks has managed to take the S&P down with it, but indeed stocks do go down, and dividend-paying, stock buy-backing stocks do go down. Do not kid yourself.
This brings me back to sentiment. Yesterday we looked at the 30-day moving average of the equity only put/call ratio. It has not turned up yet and, as I indicated, I believe it ought to do so sometime in early July. However the 10-day moving average of the total put/call ratio has finally ticked back up. And unless my eyes deceive me, these tick-ups from these low levels have in fact seen the S&P correct in the past year. On the chart below I have noted three such instances.
The S&P may be essentially treading water for most of the month of June, but there have been plenty of stocks on the move within the index.