Not much has changed in the market in the two weeks since I left on vacation. Well okay, some things have changed in that folks have gotten a bit more bullish. And most of those newfound bulls only got there after that first week when the S&P 500 dropped a quick 100 points and then rebounded.
But you see most of the stocks that had been leading the pack two weeks ago have done a lot of nothing. For example, industrials were the cream of the crop two weeks ago and using the Industrial Select Sector Fund ETF (XLI) , we see they had a quick 5% decline and have rebounded but are simply back to where they were when I left.
What has happened is that folks have rediscovered their go to growth/tech stocks. Using Invesco QQQ Trust (QQQ) we can see the quick drop (arrow) and rebound to a higher high. And when growth/tech stocks rally traders get more bullish.
Late last week, those down and out stocks that had been left for dead rallied and I think the fundamental bears see that and scoff, saying nope, not good, no way you're going to suck me in with that action. Yet the put/call ratio (which seemingly - potentially - has returned to more normalized readings) for equities was 1.31 during that quick plunge just after Martin Luther King Day and has now fallen to 0.51 on Friday. If we use the 10-day moving average we can see the big decline in the month of January. That's the shift in sentiment.
We can see it in the charts of overall volume. Here is the 20-day moving average of Nasdaq volume, which is now the highest since last summer. Keep in mind this is a 20-day moving average so it is likely to spurt even higher as we drop the first week or so of January when volume was still sub 5 billion shares a day. It is now regularly over 5 billion shares daily, with Friday at just over 6 billion.
Compare this chart to the 20-day moving average of New York Stock Exchange volume which has been trending down since mid November. As folks get more bullish they speculate more which is why Nasdaq's volume tends to rise.
The ratio of the Nasdaq volume to the NYSE's volume (still using a 20-day moving average) is now back to where it was when Nasdaq peaked in November 2021 but has some room to get to where it was in the speculative top of early 2021.
That leaves us with a market that is still overbought. Notice the Oscillator hasn't gone up since I left. That's the loss of momentum in the stocks that had been working (see comments on industrials above).
It leaves us with a market that has not seen an expansion of stocks making new highs. Even the Hi-Lo Indicator, which has spurted upward, stopped going up (you need to squint to see it) a week ago.
But it also leaves us with breadth that is still good. The McClellan Summation Index is still rising. It will require a net differential of -2,400 advancers minus decliners on the NYSE to halt the rise which is still a good cushion.
Finally, it leaves us with the Daily Sentiment Indicator for the CBOE Volatility Index in single digits at 9. With the Federal Open Market Committee meeting this week and the big cap tech earnings on the docket, it is no leap to say we should expect a rise in volatility. Until breadth turns sour, it's hard to be bearish, but with the Daily Sentiment Index on the VIX at 9 it's hard to be short term bullish. I'll look for a volatile week.