Exactly two weeks ago, I planted my foot in the "pull back" camp. The market was overbought. Sentiment was too giddy. And under the hood stocks were acting pretty crummy. It had become a narrow rally.
The S&P closed the prior Friday at 4185. Now it stands at 4180.
There is no victory in this. What it feels more like is frustration. Some stocks went up, some went down, but most went nowhere. If you made money here, you lost it there. And that means most of the indicators haven't really changed.
We're not as overbought as we were, but does this chart of the Overbought/Oversold Oscillator say anything to you except that the market has lost its momentum? Remember, this is a momentum indicator and on both Nasdaq and the New York Stock Exchange it's got lower highs. At the same time, it has higher lows. And there is an awful lot of hovering at the zero-line. Directionless. Something needs to push it.
Look at a chart of the Invesco QQQ exchange-traded fund (QQQ) , where all those stocks that had great earnings reside. Can you even point to a spot on the chart where the earnings were released? I can't. I would have to say the early April rally was in anticipation of the great earnings and so we simply saw no reaction after they were reported. We can't even say they sold the news.
Last week we saw sentiment shift from giddy to fear in the course of a week. The S&P was flat on the week, but clearly there was a lot of disappointment. Friday was the first Friday in the red since mid March. And in mid-March, it was down was by a handful of points. Prior to that, you have to go back to the last day of February for a down Friday. And yet like the mid-March "down" Friday, that day saw Nasdaq in the green.
In fact you have to go back to the last trading of day of January to find a Friday where both Nasdaq and the S&P were red on the day. So it should come as no surprise that my Saturday Twitter poll, which I believe has a strong correlation to Friday's close saw the majority looking for the next 100 points in the S&P to be down. Oh, the spread was only 6 points (late January was 15) but it's a change in sentiment for the first time in three months.
The results are in!! Thank you so much for participating each week!— Helene Meisler (@hmeisler) May 1, 2021
It is the first net negative spread in 3 months.
Thank you. @Pointedmacro for putting it in chart form!https://t.co/b1FygyBUq0 pic.twitter.com/vGpGswduTk
We also see it in the put/call ratio where the total put/call ratio is .95, the highest since early March. So, yes, last week we finally saw the frustration of the last few weeks take its toll on sentiment.
With this being the beginning of a new month and folks so negative I would not be surprised to see a rally early this week. But the indicators that were in place in mid-April that said pullback are still there, too.