Was it just Monday morning that everyone had become so bearish? Here we are two days later and the tone has shifted. It hadn't shifted much on Monday, but by the end of the day on Tuesday there were more high fives and happiness than we've had in a week, and certainly more than Monday morning.
First, we can tell anecdotally, but also the put/call ratio came down for the first time in a week. It hasn't fallen to levels we saw a few weeks ago, but it has definitely backed off, even from Monday. But we really see it in the Daily Sentiment Index (DSI).
Friday's DSI for Nasdaq had fallen to 71 (after nearly tagging 90 just over a week ago). Today it stands at 89. My rule of thumb when it comes to the DSI is that readings over 90 tend to be poor buying opportunities. Oh sure, sometimes a reading of 90 can go to 95 -- which is rare -- but at that point we're usually talking a few days, before it comes back down.
I have said that I think we see the market pull back again next week, so if we see some more upside this week -- and I think we should as it is still doable and we're not yet back to an overbought reading -- then it's likely that DSI for Nasdaq will be over 90 by early next week.
S&P's DSI is at 79, so it has some room on the runway to get higher. Curiously, while we have seen Nasdaq get to 90 or higher several times this year we have not seen the S&P do so since January.
So that's the change in sentiment. Now let's talk about breadth.
Monday's breadth wasn't the stuff you write home about. With net breadth at positive 1,560 and the S&P up 44, breadth was disappointing, but not awful. Tuesday saw the S&P add 47 and net breadth was positive 900. Now that is awful. I mean it's worse than Monday's reading with the S&P up a tad more.
Needless to say the McClellan Summation Index is still heading down. It would require a day of breadth like we saw on Monday just to get it to stop going down, and then it would require even more to turn it back up. But, hey, Wednesday is the first day of the new quarter, so maybe it can still do it.
I was asked to check in on gold and since the DSI for gold chimed in at 91 on Tuesday, I thought it would be appropriate to look at the chart. I like gold (we'll use the chart of (GLD) , the exchange-trade fund, and that breakout has a measured target near $172-$175, but with the DSI high like this it's best not to chase. A pullback toward $165 would be welcome, even a day or two of sideways would be welcome. Just to ease off the high DSI reading.