Sentiment is so hard to gauge as it's constantly moving around. Markets are feeling good or bad at all times. We see fear grip investors and traders as it did during the months of December and October, 2018. Most were stunned and simply paralyzed to do anything other than sell. It didn't matter if you were holding some high quality names like a Home Depot (HD) , Goldman Sachs (GS) or Apple (AAPL) . These stocks and many others went out like the baby with the bathwater. Every stock was taken out back and shot - TWICE!
We saw sentiment indicators reach some historically bearish levels, and when you go down low you just never know when you hit bottom. That may have occurred on Xmas Eve as Santa Claus was making his run around the globe, that day the markets plunged to levels not seen since May 2017 or longer. Since that low the markets have been on a mission, surging higher and gaining confidence from investors along the way.
I'm quite sure the whipsaw action over the past couple of months is driving you nuts, but join the club. How is it that when sentiment can be so steep in bearishness it can just turn as if you're flipping a light switch? Well, let's remember that many won't trust the first few rally attempts. That trust had been tossed out the window after being burned badly. Remember trying to buy those dips and then the market getting slammed down, your bargains all of a sudden looking poor? You probably felt foolish and promised yourself you wouldn't do it again.
The amazing rally has virtually erased all of the bearishness. Oh it was there, but no longer. The VIX is down some 55% off the highs on Dec 24, while breadth has improved, put/call ratios are heading downward. Further, the stochastics of the indices are embedded, which tells us dips will continue to be bought. Now, with the markets up some 6% or more so far this month that pace just cannot continue. However, for the bulls - the shift to a stock picker's market has become a saving grace. And perhaps now we can see stocks stand on their own rather than get beaten to a pulp when it looks like an Armageddon is about to occur.