Once again we continued with the either/or market.
When the mega-cap stocks/tech stocks rally, it sucks the life out of everything else. But when everything else rallies the mega-caps can't get out of their own way. This has been going on for months.
And I am certain the question of the day will be this: Is this the big switch from growth to value?
I will report I have no idea.
But I can tell you like politics, these two groups cannot seem to get along. As someone who considers myself a centrist -- in markets and politics -- I continue to find this disconcerting. I would, however, note that I think Monday's action should make it very clear that the market outcome from the 2020 election is going to be quite different than the 2016 outcome.
In 2016, we began with sentiment so bearish that it took weeks, if not months, for folks to get all in on the bullish side. In 2016, we began with the market so oversold on an intermediate-term basis that there was a long runway to lift for weeks on end.
This time, however, we began with short-term sentiment bearish, but intermediate-term sentiment still a bit complacent, or at least not terribly bearish. Monday, we saw the put/call ratio end the day at .75, which is pretty neutral, but it is the lowest in almost a month. One week ago, it was a very high -- too bearish -- 1.11. I showed you that the equity put/call ratio was already at .41 on Friday. It took nearly a month to see such a low reading in 2016. I expect when we see the Investors Intelligence bulls out midweek this week they will be at least in the upper 50s, which is a yellow flag and maybe over 60%, which is a red flag.
Then there is the Daily Sentiment Index (DSI), which saw the reading for the Volatility Index at 17 after Friday. After Monday, it now resides at 13. That's low enough for me to think the VIX needs to rally this week. Should it get down to single digits, it becomes very bullish for the VIX.
The 30-day moving average of the advance/decline line is what I use as an intermediate-term oscillator. It started this rally at around negative 100 and is now at positive 200. In 2016 it was at negative 300, almost negative 400, when the rally began, thus the runway was longer. Now it is almost overbought.
The Overbought/Oversold Oscillator, however, is doing what it is supposed to do. It did lift after Monday's action and I think even if the market is down on Tuesday we'll still see it lift some more (it's the math). But after Wednesday, it gets much harder to rise, which is why I have said we'd be overbought by midweek.
Breadth was good once again and the number of stocks making new highs expanded to the most we've seen all year. But in the short term, we're getting to an overbought market as we head into midweek and likely sentiment that is a bit too exuberant.