Did you feel the little shift in sentiment we got on Tuesday? Rallies have a way of doing that, don't they? I will admit that I'm a bit surprised we aren't at the point of -- or even close to -- giddiness yet. But there is a shift.
For example, the put/call ratio for Tuesday fell to 78%, this is first reading under 80% since January 25. The put/call ratio for ETFs went under 100%, the first time in a week. These are minor shifts and while both instances saw the next trading day with a down market, none of it was extreme. Just the slow shifting of the sands.
We see it as well in the Daily Sentiment Index (DSI) which finds the S&P now at 78. In recent weeks we've seen readings of 80 or more lead to corrections in their respective markets. Gold saw 80 just before its recent pullback. Two days ago the U.S. Dollar saw 80 and promptly fell yesterday. The Euro saw a reading of 10 two days ago and the next day it rallied.
I have always found readings over 80 to be warnings and readings over 90 to be red flags. I'll stick with that view. So if we get one more up day we're likely to see the DSI for the S&P move over 80.
Yet the much more intermediate term and slow moving Investors Intelligence bulls only inched up to 49.5% so they are still just shy of the 50% level and well shy of the 60% level that is bearish for stocks.
So sentiment is shifting, perhaps enough for another pickup in volatility later this week. In fact that is my expectation, that we get another rise in volatility later this week.
I do however want to report that breadth remains in solid shape. To have a bearish view on the market breadth would have to roll over and begin underperforming and that is just not happening.
Last week we saw the McClellan Summation Index get close to the edge of halting its relentless rise and then breadth improved and therefore nothing changed. Well something minor has changed. We entered last week's pullback with this indicator requiring a net differential of -3500 (advancers minus decliners on the NYSE) to halt the rise. Three days ago we got down to where we needed -300 before we rallied again.
We begin today with this cushion at -1,700 so if we correct again later in the week (my expectation) we start from a lower level and thus the indicator could finally halt the rise. I bring this up because the number of stocks making new highs has not expanded. Tuesday's rally brought us 94 new highs on the NYSE. On January 31st there were 132 new highs. Heck, there were 94 new highs a week ago. Why isn't this number over 150 by now?
In any event, these are some things to consider as we head into the latter part of the week where once again I expect to see volatility pick up.