I like to watch CNBC. Oh, I know, many scoff, because the network can sometimes be a bit hyperbolic or some of the guests are difficult to watch, but for the most part, there are some good interviews. And then there is the sentiment aspect.
Like all that hysteria at the lows.
Guests who came on the television with all sorts of lower projections for the market. As we rallied off those lows, some guests got on board and some fought the market. How can you forget mid-May, when we saw several big name folks who weren't terribly bullish on stocks and what a fuss was made over it?
But then there are the more quiet ones, who don't get the big headlines. And what I have seen over the last few weeks is a slow transformation from cautious or even bearish to bullish. Folks who talked about shorting a few weeks ago, now say things like. "Well you can't be short the market" or maybe they say something like, "Well, we have to do some hedging to balance out our longs."
It's subtle, but if you pay close attention, you can see and hear it.
We see it in their options activity now. The 10-day moving average of the equity put/call ratio is getting close to the levels we saw in January and February. Even the much slower moving 30-day moving average is creeping down there, too.
Remember, in mid-March, when the Daily Sentiment Indicator got down to single digits? It is now at 83 for Nasdaq. If Nasdaq doesn't have a down day soon, that will likely be at 90 by the end of the week and we know readings 90 or above have tended to give us a harsh down day -- at least one, often more than one.
So, we have a market where sentiment is getting a bit too bullish and we're overbought. That should provide a correction, but it hasn't. We can probably list a dozen reasons why it hasn't -- many would say the Fed has your back, but the Fed has had our back for two months and we've managed to correct at times.
To be bearish we have to see deterioration underneath, and we have not. We have not seen breadth falter. We have seen it stall out, but it stalls out with no persistence. We have not seen the McClellan Summation Index halt its rise. If it rolled over, it would tell us there is deterioration underneath.
I will end by showing you a chart of the dollar vs. the Japanese yen, because it had quite a move and no one seemed to care or notice. I honestly don't know if it is bullish or bearish, because it had a similar move just before the market rolled over in February (arrow on the chart), but it turned upward in mid-March, and so did stocks. But currencies rarely move like that with stocks ignoring it, so put that on your radar.