Note: I am taking Monday off, so my next column will be Tuesday, Sept. 28.
The anecdotal sentiment shift I began to notice on Wednesday morphed into a statistical change on Thursday, as the put/call ratio finally came down to .79. This is the lowest reading we've seen since early September.
Now, this reading is overall pretty neutral, so we need not fuss too much, but it does go to show us that the first few days of the rally folks were fighting it and now they are slowly embracing it. The problems come when they embrace it too much as the market gets overbought. And if there are negative divergences accompanying it. We do not have that right now.
What we have now is a market that, while no longer oversold, is not into overbought territory yet. Notice the Oscillator has zipped right up to the zero-line, which is why we can no longer call it oversold.
While next week we should start to get into overbought territory, it still looks to me as if that overbought reading will be sometime in early October.
As for the action on Thursday, it was the first time in a week that breadth did not outperform. Breadth is still good, but note that on Wednesday the S&P 500 gained 41 points and net breadth was positive 2,000. On Thursday the S&P gained 53 points and net breadth was positive 1,000. We do not want to see that situation where the big-cap indexes outperform breadth, because that's how negative divergences crop up.
In any event, the McClellan Summation Index turned up. You are going to need a good magnifying glass to see it, but turn up it did. Now it would require a net differential of negative 800 advancers minus decliners on the New York Stock Exchange to turn back down. So, it's still fragile, but this is what you want to see if you are bullish.
I still believe that if we see the market chop or pull back in the next few days we'd get another rally into the end of the month or early October.
However, we all know the story of the day was the bond market. This 1.40%-ish area on the chart of the yield on the 10 year is a big level, but in the big picture, is it that big? Let's be honest, there are layers of resistance all the way up. I would call it a change in pattern if 1.40% was crossed.
What I would focus on, though, is the yield on the 5-year Note. You see, that never came down as far as the yield on the 10 Year, and now it threatens to make a new annual high. If it can get through and look like a breakout, it would then measure to 1.25%, which is quite a move, because it would almost double the rate it was in early August.
I suspect interest rates could become the market's new obsession in the weeks ahead as we have a debt ceiling showdown in Congress.