At the March lows, stocks were so hated that the Daily Sentiment Indicator (DSI) fell to single digits for both Nasdaq and the S&P 500. We have rallied hard since then.
In late April, we saw the price of oil go negative, which was accompanied by hysteria -- and a DSI of 3. So, of course, oil rallied. In the past month we have seen the Bank Index retest its low from March. That, too, was accompanied by cries that banks were no place to put your money -- I mean the stocks not the institutions, although maybe some felt that way about the institutions as well.... And, of course, the Bank Index is up nearly 50% from then.
Or what about when American Airlines (AAL) was surely going bankrupt? Now it has doubled.
I could go on, but stop and ask yourself now if there is any group that is still down and out and hated? I know it's hard to find a hated group now. I struggle to think of one. The best I can come up with is that biotechs and drug stocks were over-loved a month ago and now it's like they don't even exist. Like an old lover who has been forgotten.
Surely you remember the love affair with that breakout in IBB in early May, don't you? I saw so many screaming breakout of a multi-year base. In case you have forgotten, here it is.
All that love seems to have been forgotten as investors moved on to the next hot group. As you can see IBB is now actually a smidgen lower than it was at the breakout. There was clearly too much love there.
Now we find ourselves with a whole lotta love for the overall market. We have discussed the put/call ratios and how low they are. The 10-day moving average of the equity put/call ratio is now under 50% and approaching the January low reading.
Even the 30-day moving average is almost back to where it was in January 2018. That's a lotta love.
Friday saw the DSI for Nasdaq tag 90 for the first time since Jan. 23. The DSI moves on a scale of zero to 100, so readings in the single digits mean there is too much hate and readings over 90 mean there is too much love. Here's the chart of Nasdaq with an arrow showing the last time the DSI was 90 or more. It actually hung around for a few more days before a nice shakeout.
Gold (GLD) saw its DSI over 90 about a month ago (arrow on the chart). Here, too, it didn't matter immediately, but GLD has since fallen from $165 to $158.
Silver (SLV) also saw its DSI over 90 recently. It popped then dropped.
There will be some examples when the DSI got over 90 and it didn't matter, but in my view those are few and far between. It is more common for it to matter in the very short term (it is a daily reading after all).
The S&P's reading is 87, so it has a little bit of room to catch up, but as you can see the runway there is short, as well.
The market is overbought and over-loved. I think it ought to correct. The breadth of the market is still quite strong, so I'm just talking about a correction. But so far that has been the wrong call.