Gold backed off. Bonds backed off. The dollar was up. And once again the debate over whether we should own value, otherwise known in my world as the down-and-outers, or growth, otherwise known as the mega-cap tech stocks.
I will let others debate if this is a sea change or just another group rotation. As I noted here several weeks ago, I am drawn to down-and-out charts and not ones that are up already. If the tech stocks should come down and start to base again as the value stocks have, I will be drawn back to them. I have no preference, as long as the chart is basing, not up already.
But back to the overall market. The S&P has been green for seven straight days. It went to eight in the spring of 2019. The transports have made it to nine in a row. The last time they did so was heading into the January 2018 high. So, sure, we can see a reason for a pullback. I mean, even when you play roulette you know that black doesn't come up every single time.
But there's more than that. There is the discussion I had Monday on how August seems ripe for volatility. I had several indicators that I showed you, but I also noted that the Daily Sentiment Index (DSI) was at 10 and had the chance to fall to single digits. It did just that on Monday when it fell to 8.
The last time the DSI for the Volatility Index fell to single digits was Jan. 17. Note that was not the high for the market. We pulled back and rallied again, making the high a few weeks later in February. So how did things look heading into that mid-January high?
The VIX was clearly much lower then than it is now and it didn't even have a similar pattern. Back then it had been steadily lower for three weeks (blue arrow) when the DSI fell to single digits. The S&P corrected over the next few weeks -- just about 100 points -- and the VIX went from 12 to 20, enough to remove the excess.
Now the VIX looks somewhat similar to the pattern that developed heading into the June high, where it was simply leaking for months -- until it wasn't.
It would not surprise me to have a down day on Tuesday with one more rally try again, but as I noted Monday and now with the DSI for the VIX at 8, I do not think August will go quietly. I think August see a pick up in volatility.