Someone noted to me on Friday that it's hard for them to believe the S&P 500 is up on the month. I suppose that is correct when the S&P started the month near 4,350, promptly fell 100 points and then rallied back 150 points. Would you call it a chop-fest?
But look at the chart. Is it dissimilar than the month of May? May started the month around 4,200, promptly plunged to 4,050 then screamed back to 4,200. So what's so different? I would say that at least that rally back in late May saw the breadth of the market participate. Look at the McClellan Summation Index: by the time the market entered the month of June, it was well on its way upward.
But look at it now. It had a minor attempt at turning up late last week after the S&P had already rallied 150 points. And so far it is sputtering at this turn, gasping for air like a drowning person.
As we began last week it was my view that the small caps should play some catch up to the mega caps and that is what happened. The Russell 2000 ended the week up while the S&P ended the week down (as did Nasdaq end down). Oh it was not enough to get excited over, but the smalls did play catch up.
Now we enter August with sentiment on a down note. My (unscientific) weekly Twitter Poll showed a mere 44% looking for the S&P to lift 100 points this week while 56% were looking for the next 100 points on the downside. That's unusual for a week where the S&P was down a handful of points, but I think it shows how difficult the last few weeks have been. The losers stabilized a bit but continued to lose while the winners stopped winning.
Another sentiment indicator is the 10-day moving average of the equity put/call ratio. It seems to have finally peaked. But even at that you can see how different this peak looks than the prior ones. I think it's part and parcel the either/or market we have that has become so wildly divergent in recent weeks, more so than at any time since last summer.
My Overbought/Oversold Oscillator finally made it over the zero line. Yes it's the math. Speaking of math, it is my contention that the market will be back to an overbought reading - using breadth, the input for my oscillator - by Tuesday. On Monday, we drop the last of the string of big negative breadth readings which should spurt the indicator higher.
But there's another reason to think small caps can enjoy another day of love. In 2021, the first day of the trading month has been quite kind to small caps. With the exception of January when the Russell 2000 lost nearly 30 points on the day, every first day of the month has been up. Four of those six months saw the Russell up more than 1%.
It's what happens. After we get overbought, things go back to murky.