Anecdotes about the market are fun. Statistics help back up those anecdotes. And that's the best time to focus on the trade.
I have noted in the last few weeks that I thought energy stocks had gone too far. I showed you the Sentiment Cycle and indicated I thought for energy stocks we were at Enthusiasm (using the energy exchange-traded fund (XLE) ). I have noted that the Daily Sentiment Index (DSI) for energy tagged 92 earlier this week.
I have noted that XLE is the same price it was in early February, which means that the Russia threats over Ukraine has heated up and there has been very little benefit to the stocks.
Anecdotally, I would also like to report that I saw so few mentioned the reversal in oil and XLE. Usually that's the sort of thing everyone is chatting up, but we saw very little of that. Perhaps because they are all still long? I do not know, but I can tell you that this is the uptrend line I am focused on. I can also report that the Daily Sentiment Index has come down to 78 for Crude.
I would like to see the line not only tested, but my preference is for it to be broken just to see if we can get a shake out and a better set up in the names.
Then there are the bonds. For weeks no one was terribly focused on the High Yield Bonds, yet the HYG an exchange-traded fund to be long bonds, was sliding like it was an Olympic skier trying to beat the clock. Two days ago I heard folks start talking about high yield spreads and how poor they are (widening). Yet I am staring at a chart that shows HYG has had quite a rally since Monday.
I think that downtrend line will stop any rally in its tracks, at least the first time up there, but couple the very recent chatter (fear) about iShares iBoxx $ High Yield Corporate Bond exchange-traded
fund (HYG) and the very low DSI on the government bonds I discussed Wednesday (it was 12 two days ago and is now 15) and maybe I am correct that the bonds are in an area that says "enough" for now.
The sentiment on the market remains as sour as can be. Wednesday's Investors Intelligence readings saw bulls notch down a smidgen and bears lift a bit. The ratio of the two is now hovering just over 1.0. In the past when the ratio reaches just below 1.0, it has been bullish for stocks, even if it's just a rally.
The 21-day moving average of the put/call ratio on the Volatility Index seems to be peaking. We looked at this indicator just over a week ago. At the time I noted that these options tend to be played by pros and when it peaks it means the pros are looking toward less volatility not more, although it is often within a few weeks of a low, not at the exact low.
One final word is on the day of the week. It turns out that Thursday has been a bad day in the market in 2022. All of them have been red. Should that change this week, I would view that as a generally positive turn of events, because any change in pattern is worth noting.