I have no idea what to make of sentiment. Let me explain.
From an anecdotal standpoint, I spent the early part of last week fielding questions that were pretty much versions of "Are we oversold yet? We must be oversold already."
Then Thursday came around and Friday's version, after I wrote about the upcoming oversold condition using the Nasdaq Momentum Indicator, was, "Yes, but we can get more oversold."
That's a subtle change, but a change.
Prior to Thursday, folks were feeling good about buying the pullback, but by Friday, they were more nervous about buying the pullback. Then came Monday, and, again this is anecdotal, there was a lot more of this: "We're going higher."
So, over the course of one week folks went from buying the dip to scared to buy the dip to what dip?
Yet, as you know my weekend Twitter poll did not show bearishness after Friday's plunge. But the put/call ratio did. Then comes Monday and the put/call ratio did not sink, as it has for the last four months, but instead it flew upward. Friday's reading was relatively high at .92 and was understandable. But Monday's reading of .97 -- higher than Friday -- is not. It is now the highest reading since late October. It is also the first time we've seen the put/call ratio high during an up day since Election Day.
Let me note that if we forget the one-day reading and focus instead on the 10-day moving average, a high reading helps push the moving average up and a high moving average that peaks and rolls over is a positive for the market not a negative.
Away from that, the breadth was very good, as you would expect. It wasn't good enough to turn any of the indicators, but it surely didn't lag. In fact we didn't even have an Either/Or Market on Monday.
The number of stocks making new lows contracted (as they should have), but the new highs did not expand. That means there was no change in that indicator, either.
So we're stuck where we were, or have been, with an oversold market. I'm sure someone will ask how we can be oversold after the S&P tacked on 90 points, but that's the way it works. This means if the market gives some of the gains back in the coming days I would still expect us to have another rally before the week is out.
If any of the indicators change, I will gladly alert you, but for now, it seems we're still in this pattern of up for a few weeks, down for a few weeks, up, down and so on.
I will end by reverting to the discussion from my Monday morning column about the chance for continued volatility. The Daily Sentiment Index (DSI) for volatility (VIX) is currently at 14. Typically that means if the VIX comes down much more (i.e. if the market rallies much more) the DSI will go to single digits and we'll be ripe for another bout of volatility.