Once again I see the debate everywhere. Is this a "wall of worry" or are folks too bullish on artificial intelligence and tech? The answer is the same as it was two weeks ago when I addressed it. I still think it's both.
It is understandable why folks are bearish. The majority of stocks have been heading south for six weeks now. Just look at the breadth of the market to see that. The blue line goes down starting in mid April and the brown line (the S&P) meanders upward.

I can also use the McClellan Summation Index for breadth. It's a smoothed out version. It too has been going down since mid-April.

None of this is surprising. How can it be when you look at the charts of all the stocks that go down or sideways? It makes perfect sense that the Citi Panic/Euphoria Model shows itself to be residing firmly in Panic.
Sentiment makes perfect sense when you see Nasdaq at the August high of 13000 and there are still more new lows than new highs. Why would folks be bullish with those sorts of statistics?
But you know what else makes sense? That folks are bullish on tech. It's going up. Why wouldn't they be bullish? And we know they are bullish because the International Securities Exchange Equity call/put ratio chimed in just shy of 2.0 on Tuesday. That is the highest reading since late March 2022. I have put the arrow near the high, but that ISE reading came about a week prior to that. But yes, you can understand the bullishness, can't you?
After all tech stocks are screaming upward double-digit percentage moves, sometimes in one day. That makes folks bullish on tech. Understandable.
How does it resolve? Well I keep thinking it would resolve with the "others" playing catch up, but I have been wrong. In fact most of the others are spending more time drifting and milling about than they are plunging. I have said this before and I still think it is true.
But back to Nasdaq and tech. The Daily Sentiment Index (DSI) for the VIX is back at 11. The DSI for Nasdaq even got to 83 on Monday (The DSI is based on futures which traded Monday, thus we got a reading so this is not a mistake). It has fallen back to 78 as of Tuesday.
It's easy to imagine a scenario where Nasdaq rallies again later this week and the Volatility Index's Daily Sentiment Index plunges to single digits and Nasdaq's gets into the danger zone (over 85). Maybe that would give us some of that group rotation.
But if you are wondering about sentiment, it actually seems perfectly logical to me.