There has been much chatter lately about how the market trades like it is 1999. And, yes, there are many aspects of the way stocks have traded of late that might have similarities to 1999. For example, there are many stocks that have doubled -- not just since March, but in the last few weeks.
But the difference, as I see it, is that stocks that have soared, like American Airlines (AAL) , are coming up out of a base, they are not going parabolic to new highs. Oh, sure, maybe that's a distinction without a difference, but to me the charts look different.
Even a stock like Hertz (HTZ) , which has increased tenfold in two weeks, thus looking very speculative, does not look parabolic like stocks did in 1999. And, yes, I know it's a bankrupt company, which is why this is so speculative.
But the biggest difference is breadth. Just take a look at the chart of the cumulative advance/decline line from 1998 to early 2000. That's what a bear market looks like. That looks nothing like what the major market indexes looked like in that two year time frame. In that two-year time frame the S&P and Nasdaq zoomed ever upward, but the majority of stocks just went down.
So, yes, the speculative nature of the market is similar, but the charts are different -- at least to me they are -- and breadth is different. In fact breadth looks more similar to the way it looked in late 2000 and early 2001, doesn't it?
This is not to say Monday's market isn't showing signs of speculation. Not only is the market overbought and refuses to go down or even correct, the sentiment is getting a bit carried away now as well.
We have discussed the put/call ratios, but once again the total put/call ratio chimed in at the lowest reading since December 2016. The arrow on the chart shows that we managed to go sideways for six to eight weeks. The low readings prior to that one arrived in August 2015, before the market plunged.
To show how persistent these low readings are, look at the 10-day moving average of the put/call ratio, which is now back to the low reading of late January this year.
There is also the Daily Sentiment Index (DSI), which I discussed in full in Monday's column, but here, too, we have gotten extreme. The S&P joined the Nasdaq with a reading over 90, as it came in at 91 on Monday. Nasdaq climbed a bit more to 93. Nothing is perfect, but history has shown us these high DSI readings tend to give way to short-term pullbacks.
In terms of overbought, recall just over a week ago Nasdaq's McClellan Summation Index (where I use volume instead of the advance/decline line) was on the verge of halting its rise. Then it got saved. It got saved so much that now it will require a net differential of negative 6.4 billion shares (up minus down volume) to halt the rise. That's a smidgen more than was needed in mid-April. Nasdaq quickly fell 4% in a few days after that.
I think we need a correction. So far that call remains a wrong one. But I also think that as long as breadth is strong it is difficult to be bearish. If breadth weakens or there is deterioration underneath that will become problematic.