In late February, sentiment on the market was super bearish. Every single sentiment metric we had was screaming too many bears.
We had the Investors Intelligence bulls at 29%. We had the American Association of Individual Investors with bears over 50%. We had the National Association of Active Investment Managers (NAAIM) with exposure down at 30. We had high put/call ratios on a regular basis, having pushed up the 10-day moving average lines to the top of the page.
We were also quite oversold. But the rally in mid-March took those situations off the table. We got overbought last week and then spent the week chopping about, with the S&P finishing the week exactly two points from where it began the week. We also saw the super bearish sentiment thin out in a serious fashion with the Investors Intelligence bulls moving up to near 38%. The AAII bears fell to 27.5% and the folks at NAAIM had increased their exposure to 80.
We are no longer oversold. And we no longer have so many bears. Now the action in the market on Tuesday might help increase the bears, but I don't think it is going to push folks back into the bear camp in the type of numbers we had six weeks ago. Or it won't do it quickly.
That's why I would say this pullback is different than what we saw in late February. The set up is different.
In late February the transports were making higher lows, now they are making lower lows. In late February the Russell was making higher lows, now it rallied right smack into resistance.
Yet in late February the 50-day moving average lines were still heading down. Now they have stabilized and trying to turn upward.
In late February, the energy sector had held steady and was pushing higher. But now no one seems to notice that Energy Select Sector SPDR Fund (XLE) is the same price it was a month ago. What if it breaks that uptrend line? I am no commodity expert, but I did notice that gas prices at the local station have come down 15 cents a gallon and everyone is still chatting how oil is screaming. Is it?
In late February we were told that banks liked higher interest rates. We've got higher rates, that's for sure, but the banks haven't liked them very much, have they?
Tuesday's decline to me is part of the giant chop-fest we've got going on right now. I wouldn't be surprised to see the market rally on Wednesday. But I still don't think we're set up to do more than rally for a day or so right now.
Breadth was poor on Tuesday, but for now the McClellan Summation Index holds on with a small cushion, meaning that if breadth continues poorly it will halt its rise and then roll over.
In sum, the market is in a different place than it was six weeks ago, but so are the individual groups.
