I often wonder how it is that so many seemingly called June as the bottom, when sentiment was so bearish at the lows. I mean, the Investors Intelligence bulls were 26%, and the American Association of Individual Investors' weekly survey had bulls at 18%. Even the National Association of Active Investment Managers (NAAIM) saw their exposure at 20%.
And, yet, everyone you see on television seems to have been bullish in mid-June. Something must clearly be wrong with the sentiment data!
Then, I wonder, if we look back at the 2000-2003 period, if folks were equally convinced in the fall of 2000 (blue box) that the lows were in. And I don't mean "a low," I mean "the low." Perhaps there wasn't such an obsession with being so perfect back then. I can't recall.
But what I can tell you is that the rally from the April low to that September high was nearly six months in duration. It was also about an 11% rally.
I can also tell you that the McClellan Summation Index back then was on an upswing, having bottomed in November of 1999. In the summer of 2000, it made a high, but then stalled out and by early September it was heading down with a vengeance.
I can also tell you that the AAII bulls were in the 25% area in the first half of 2000, but by that summer they were a smidgen over 65%. So at least these folks were convinced we were no longer in a bear market.
This is why I won't know if that was the low in June or not for months to come. I will simply try and play the swings and focus on the indicators that will hopefully guide us.
But let's talk about the current situation.
The Summation Index is still rising and, while two days ago it needed about a net negative 5,000 advancers minus decliners on the New York Stock Exchange to halt the rise, (which is what made the market overbought using that metric), now it needs a net negative of 3,400.
The resistance overhead coupled with the overbought-ness has brought us some volatility (see the Volatility Index has rallied from 21 to 24 already this week) and a pullback that is relieving the overbought condition.
Then there are the bonds. When I said I liked bonds in mid-June, it was because the yield on the 10 Year had hit a target area (3.1%) and the Daily Sentiment Index was at single digits. All around us, folks were calling for higher rates. Now the perception is that the Fed has pivoted and rates have peaked.
I look at the chart and I know if the yield on the 10 Year gets back up and over this 2.80%-2.90% area, folks will -- or should -- rethink that view that the highs for rates are in.
This market has been all about rates and continues to be that way. I don't see that changing.
