For a market that has remained in a trading range for as long as this one has, it certainly has a lot of emotions attached to it.
Just last week, we saw heavy betting on a lower Volatility Index, with two put/call ratios for the VIX over 100%; that's a bet on stocks higher, and lower VIX. So, of course, the VIX stopped going down. Typically, when we've seen two such high readings, we've seen a minor pullback in the market; the VIX went up, proving the contrarian trade correct. But overall the market didn't tend to fall apart, it tended to pull back and rally again.
Then we saw two readings for the put/call ratio for exchange-traded funds go under 100% -- that's a bet on higher ETFs/stocks. So, of course, Friday's decline arrived, proving the contrarian trade correct.
Then came last Friday, with the market's first real decline in about two weeks. The market was one down day, yet the put/call ratio for equities flew to 99%.
Now, let's stop and think about this for a minute. On Friday, Oct. 11, the equity put/call ratio was 51%, meaning folks were buying calls hand over fist. On Friday Oct. 18 it was 99%, meaning folks were buying puts hand over fist. How can you be so bullish and then so bearish, when the S&P 500 has moved from 2970 to 2986? That's why I say the market has become so emotional.
But Friday's breadth was flat with the S&P down nearly 12 points. That goes on the positive side of the ledger. It has helped the McClellan Summation Index keep rising, barely. But a day with down breadth of negative 700 would halt the rise, so we'll put this on the positive side of the ledger with an asterisk.
The aforementioned equity put/call ratio is simply odd, because usually a reading like that arrives after the market has fallen a good deal, not on the first day down. I can rationalize it -- something I prefer not to do -- by saying perhaps folks were hedging bets for the Brexit vote on the weekend, but it still seems quite extreme.
To put it in perspective, we last had such a high reading on Aug. 15, but the S&P had fallen 200 points in the prior two weeks. That made sense. In any event, this would go on the short-term positive side of the ledger. Yet, look at the 10-day moving average of this ratio. It has turned back up, which is generally not so bullish.
So you can see the indicators remained mixed. The Fear of Missing Out Bulls continue to play tug of war with the Recency Bias Bears.
I do want to end with a chart of the Dollar Index. It surprises me that it has fallen so much in the month of October, with nary a peep about it. It is coming into some decent support around $96.75 and is getting oversold, so I'd look for a bounce. It would be better if we saw some concern or hysteria over it.