The other day I turned on Bloomberg television and they were so giddy over the 'melt up' in the markets. I am not a fan of melt up and crash calls, because they are dramatic and not necessary. But more over, because they are outliers. But I had to wonder: Had they looked at the major indexes for the last week?
Exactly a week ago, the S&P 500 closed at 2880 and today it stands at 2888. That's up, but it's no melt up. So I thought perhaps they meant Nasdaq. Nasdaq is up 50 points in that same week. That isn't even 1%. The Russell is up about ten points, but that too is less than 1%. Surely I'm missing something. Wait, let me check on the Dow.
Nope, can't be the Dow Jones Industrial Average -- it's now lower than it was on April 1, and the same price it was in late February. But I do understand the feeling that the market simply doesn't want to go down. The overbought reading has produced a giant sideways, and not much more. It's as if we're all standing around waiting for the show to begin.
But look at the chart of the Dow. It's trying its hardest to fill that gap up from early April. And maybe even retest that broken downtrend line. I know no one cares about the DJIA, but, heck, of all the indexes it has the most interesting pattern. And because it has come down, it is the one moving closest to getting oversold.
The biggest change in the indicators from Thursday's action came when the put/call ratio surged to 99%. Believe it or not, this is the highest reading since March 27. Gone are the days when this indicator was regularly over 100%. In fact take a look at the 10-day moving average of the total put/call ratio because it is back to where it was in late February, just before we had a correction.
The only time it hasn't mattered when it got down this far was back 2017. There is a pattern here: none of these sentiment indicators mattered in 2017, but as you can see outside of that particular year -- and yes even now in 2019 -- it has produced a correction.
But really what the market has done in the last week is chop everyone to death. You see a day like last Friday when the market is strong, breadth is strong, small caps are strong and there is no follow through on Monday. Then Tuesday comes along and the market is down, breadth is weak and there is no follow through on Wednesday.
Then Wednesday gets saved after being down and folks say, "OK, here we go, back to the upside," and Thursday comes along where they can't take 'em down or up. The only purpose this has served to the indicators is to start pushing the Oscillators back down. That's it. I'm simply not sure this action is called a melt up. I call it churn.