There was a bit of an uproar late Wednesday afternoon when I noted that the Fear and Greed Index was sitting at 38. You might recall that in early July it was hovering around 95.
I believe folks were unable to comprehend that the S&P is back to where it was earlier in the month and yet sentiment was so un-giddy. I can understand why, though.
In early July I thought the market would correct. The S&P did not correct; it merely moved sideways, with a minor push lower last week before rising again. But the Russell 2000 definitely corrected, as it fell 7% from the highs. As I have said before, if you don't think a move of 5% or 7% is a correction, then you are a perma-bear. The Russell 2000 had rallied 10% off the May lows, so to give back 7% is definitely a correction.
Since last Thursday's low, the Russell has rallied more than the S&P, albeit the outperformance is minor on a comparative basis. Yet please stop for a minute and consider the declines in some of the big-cap, dividend-paying, stock-buy-backing companies folks have hidden in. Have you seen United Technologies (UTX)? How about McDonald's (MCD)? Even beloved Boeing (BA) can't get out of its own way. And why is it that no one even bothers with General Electric (GE) anymore? Kimberly Clark (KMB) laid a bomb too, this week.
Ask yourself: how can folks be giddy when the stocks they are hiding in act like this?
Now let's move on to the small caps, or the Russell 2000. Sure they have bounced nicely off the lows, but this index has barely recaptured its 50-day moving average. Remember the 50-day moving average is the average price this index has traded at for the last 50 trading days. So how can folks be giddy over this?
In early July, the number of stocks making new highs on the NYSE was 364. Wednesday's minor higher high in the S&P chimed in with 190 new highs. So we have about half as many new highs as we had a few weeks ago. Would that evoke giddiness?
In early July, Nasdaq had 205 new highs. Wednesday there were 75 new highs. That's not only less than half, it's twenty fewer than we had on Tuesday! Again, how can that evoke giddiness?
So for all the folks scoffing at the fact that the Fear and Greed Index is at 38, I say it makes some sense to me. Folks are watching the indexes rise higher and higher, but the individual stocks are not playing along. Just consider that after four days of rallying, the McClellan Summation Index is still heading down. Not only that, it made a lower low.
I'll leave you with one final statistic. Nasdaq tacked on 17 points on Wednesday. Net volume (that's up volume minus down volume) was +160 million shares. On Monday, when Nasdaq dropped seven points, net volume was +50 million shares. Nasdaq gave traders more on a down day than it did on an up day on a relative basis.
And that, in my view, is why there is no giddiness in this market.