You can feel the shift -- finally -- in the folks around you, can't you?
After three days of the market rallying, they are slowly giving in, slowly no longer fighting the rally, slowly trying to embrace it. We know this, because for the first time in more than a week, the put/call ratio fell under .90.
I wouldn't say that .89 shows anyone getting carried away on the bullish side, but it is far cry from the 1.15 reading we saw last Friday, isn't it?
Sticking with sentiment, on a more intermediate-term basis, the Investors Intelligence bulls dropped nine points this week. That's a ton.
The last time we saw a week-over-week drop like that was coming out of the December 2018 low. The time before that was coming out of "Volmageddon" -- when volatility rocketed up -- in February 2018. And the time before that was the big low in February 2016. The main difference is that in all of those instances the S&P 500 tumbled quite a lot, which is not the case this time.
That said, when the Investors Intelligence bulls are under 40%, as they are now, we know sentiment, even though this has a lag from last week, is not even close to being giddy.
In fact, the 10-day moving average of the put/call ratio hasn't even turned down yet. I expect we will see that occur in the coming days.
Breadth put in a decent showing on Wednesday and it was enough to get the McClellan Summation Index to turn upward. It would now require a net negative reading of negative 1,100 advancers minus decliners on the New York Stock Exchange to turn it back down. Sure, a harsh day could do it, but with the market still not yet overbought, I'm looking for the indicator to rise, even if you need a magnifying glass to see the turn now.
One reason is the sentiment. Another is that the 10-day moving average of stocks making new lows has rolled over. Sure, it can pick up again, but it is now over a week that the New York Stock Exchange has seen contracting new lows.
One thing I would point out is that we are no longer oversold on a short-term basis. We are not overbought by any stretch either, but we're no longer oversold. I do expect some time in the next week we'll see the Oscillators push up through the zero-line. Much will depend on the next few days, but at this point I would expect us to get overbought in about a week.
Finally let's talk about the 4700 area for the S&P. In November we saw the S&P close at 4701, twice. It closed at 4700 once and 4704 once. Wednesday it closed at 4701. Clearly there is some resistance here. If we see the market pull back, I still think there will be another rally attempt (see the head-and-shoulders bottom patterns I drew in earlier this week). If we see the market clear this level, we may just see the move from bears to bulls turn out to be one of the fastest on record.