Would you like to see another chart showing how overbought we are? Or maybe you want to see another chart showing resistance overhead? If you're like me, by now you see those charts even when you're not looking at them.
But as you can tell from the action on Thursday, there are very few who don't see them. In fact, I realize yesterday I shared that anecdotally I saw so many with the same charts so today I have one statistic to share with you that is not anecdotal. Thursday's market saw the put/call ratio rise to 113%, showing folks are "planning" for downside. At least that's my interpretation.
There is one indicator that shows a big shift in sentiment though. The American Association of Individual Investors now shows bears at 29%, down from 50% two weeks ago. This is also the fewest bears we've seen since we saw 25% at the early October high.
Rather than rehashing the overboughtness and resistance and sentiment again, let's take a look at the Semiconductor Index (SOX) today. For the most part I am not a huge fan of the group longer-term although I have warmed up to the group for a trade at times. A few weeks back when the market was grossly oversold I showed some charts of the Russell 2000 and the DJIA noting the daily change in the spread between the 50- and 200-day moving average lines. I would like to show you that chart for the SOX.
Notice that once this indicator gets to +2 or just over it tends to peak. It is currently hovering just below it. Of course it needs to peak and then roll over but let's look at what those seven previous times (since 2014) have done. Also let me note that prior to 2014 it was not over 2 since the spring of 2009.
Here is the chart encompassing point A in 2014.
In 2015 we had twin peak readings that are noted on the chart. We corrected after point B, rallied to point C but it was still not a good time to get long.
In 2016 I have labeled the whole time over 2 as point D and you can see the SOX spent six weeks chopping around before it ultimately fell and then moved up again.
Point E saw a minor correction as did point F.
In late 2017 and early 2018 we see point G which gave us quite a big correction and in the end was not worth much on the upside as it was all part of a topping pattern. I have circled the peak in March because the indicator came to just shy of +2.
With the exception in July 2016 and September 2016 where the corrections were minor, readings over 2 have produced corrections in the SOX. At the very least readings over +2 tell me it's not the time to add to your SOX position. I will keep you posted if/when the reading moves over +2.