Do you know anyone who feels comfortable buying stocks here? Probably not. Or at least very few.
Because, we're at resistance. Because we're at the 200-day moving average lines. Because we're up so much already. I believe I heard "too far, too fast" a dozen times on television on Monday. And yet it is all true.
You know what else is true? It's true that for the first time in over a month we had the S&P 500 up and breadth didn't play along. Net breadth on the New York Stock Exchange was flat as a pancake on Monday. Yet the indicators continue to rise. It will take more than one day of poor breadth to weaken the indicators. In fact if you are bearish, you should hope to see a lot more of that: The indexes rallying and breadth stalling or falling. Because that is what it will take to roll the McClellan Summation Index over. It still needs a net differential of negative 3,100 advancers minus decliners on the NYSE to halt the rise (and obviously more to roll it over).
Here's something else that is true. The put/call ratio remains over .90 with Monday's reading clocking in at .92. Should the equity put/call ratio come in at a reading under .50 then we'll know folks are getting a bit giddy. That's what I would watch.
I would also watch the chart of iShares iBoxx $ High Yield Corporate Bond exchange-traded fund (HYG) . Last week we looked at it noting it had backed off from resistance and nothing more. Friday it recaptured some, not all, of the intraday decline. On Monday it milled around. This is all perfectly normal action for something that has reached resistance. However, should it break under $77.50, that would be a warning that things are deteriorating.
The bottom line is that the indicators didn't change much after Monday's mixed market. We're still overbought (is that why breadth stalled out?). But the indicators are still rising. We're still sitting at or near resistance. The number of stocks making new highs is still reluctant to increase. And sentiment has shifted but is not giddy.
Even the Volatility Index remained green on Monday. That means the Daily Sentiment Index (DSI) didn't budge. It remains at 15. What did budge is Nasdaq's Daily Sentiment Index. It now stands at 60, which is the highest reading since March 29, when it was 62. Nasdaq's DSI was single digits on June 13, as was the S&P's and the bonds.
To me that is not extreme, it is however, the sands of sentiment slowly shifting, a theme I have touched on the last few days. The last time we saw Nasdaq's DSI over 90 and the VIX's DSI at single digits was the first week of November.
So that's what I would watch, if you're looking for a change in the market. I still anticipate late August should bring us a bout of volatility.