The market has a funny way of doing things.
Just over a week ago, I noted how all the optimism had been wrung out of the market, how everyone had forgotten about Apple's (AAPL) great quarter. How folks had forgotten their cries of the consumer is not dead, as when they saw Walmart's (WMT) and Target's (TGT) earnings. Instead, they were so focused on bond yields and how they kept going down.
Sentiment was lousy. The put/call ratios were high. Heck, the put/call ratio on Aug. 30 was a whopping 125%. That same day the put/call ratio for the Volatility Index was 17%. Sure, the very next trading day the market was down, but the Dow Jones industrial average hasn't seen a down day since then. Not one down day in six. The last time the Dow went more than six straight on the green side was in May of 2018 -- more than a year ago.
The news hasn't changed much. Sure, there's hope for China trade talks now, but, honestly, there was trade talk hope after the Chinese announcement on Aug. 29, and still sentiment was dour.
The market moves to a short-term overbought condition as of Thursday. For nine of the last 10 trading days, breadth has been positive. That's bullish, but it also makes us overbought.
So why do I say the market has a funny way of doing things? Because when the S&P 500 was flat for three days and Nasdaq was red, and no one got terribly bullish. Then the S&P rallied and so did Nasdaq, and all of a sudden the put/call ratios plunged. Just as we reach an overbought, folks decide to get bullish.
The total put/call, was 78%, which is just "this" low side of neutral. It hasn't been this low since July 23. That's quite a change. Couple that with the put/call ratio for exchange-traded funds, which was under 100% for two consecutive days -- something we haven't seen since early July -- and we know the conversion is finally taking place.
Now, let me report that the various moving averages of the various put/call ratios are still trending down, and none are extreme yet (supportive of the market), but it is sort of funny the way folks finally threw in the towel, just as we reach a short-term overbought reading isn't it?
I remain concerned that the number of stocks making new highs is still paltry, but the number of stocks making new lows has contracted to single digits for the New York Stock Exchange, which is something not seen since early April. For Nasdaq, we haven't seen so few new lows since January. This means for now the 10-day moving average of new lows continues to fall.
The intermediate-term indicators are still positive, so while I expect a dip or a pullback, I still think we would rally again after that. The Dow has gone six days in a row on the green side, it can go more, but the longer it goes without a down day, the higher the likelihood it has one.