Each week on Saturday I conduct a poll, inquiring what folks think the next 100 points of the S&P 500 will be. Each week for the last four weeks the poll has indicated a majority are looking for the next 100 points to be up. I have circled the last four weeks on the chart of the S&P below. Four weeks ago the S&P closed at 3699 and Thursday it closed at 3703. That's four weeks of chop and sideways.
It's also four weeks of folks looking for up and getting chopped up in the big cap index.
The green arrow on the chart is the last time the majority in my poll thought the S&P would be down in the following week. To me this is the perfect picture of sentiment. And I maintain that unless/until the S&P breaks an uptrend line or makes a lower low that sentiment is unlikely to change.
In the last four weeks we have seen all the action in the Russell 2000 and Nasdaq. And sure it's been a stock pickers market, because of that. But look at the McClellan Summation Index, which tells us what the majority of stocks are doing. That flattened out three weeks ago and rolled over this past week. So within that the picking has gotten slimmer.
I think we're at that time in the market where so many stocks that had great runs off the lows have stalled out enough that most folks think we need a correction. Sentiment has gotten so enthusiastic that most folks think we need a correction. Yet they keep looking for the next big move in the S&P to be up.
I don't think there has been enough weakness to be bearish, but I think there has been enough chopping around to realize that the upside is getting harder to come by. Usually a good correction will clear that up. Usually a good correction will reset sentiment. A good correction will reset the indicators from overbought to oversold. Heck, just look at that green arrow from late November when sentiment turned sour after a bad week in the market.
In the meantime the channel in the Russell 2000 fund (IWM) remains intact. The IWM is in the middle of the channel right now, not at the bottom or the top line. So it tells us very little.
What we do know is that Thursday saw some small, but decent selling as the TRIN soared. It soared, because breadth was positive using the advance/decline line. Those stocks that were down, however, had all the volume. The last few times the TRIN has been this high the market bounced and came back down. I will admit that surprised me since a high TRIN is often the sign of capitulation.
I think we are short-term oversold enough to rally a bit more this week, but in general that elusive correction to give everything a good reset is still on the table.
Meisler will be off until next Monday. Her newsletter will appear on Sunday.