The S&P 500 and Nasdaq -- and beloved big caps --haven't seen much selling. So, folks are a bit complacent. Or, they were until yesterday.
Last week I noted that the Investors Intelligence bulls were still relatively high at 48% and that felt complacent to me. This week the bulls have backed off a bit, to 45% but the bears shocked me when they too fell. The bears are at 23.6%. This is the lowest reading for this survey since January 2022.
I suspect it will change in the coming weeks, but that is complacent for now.
One reason I suspect it will change is because we have seen quite a bit of put buying make its way into the market. Wednesday the total put/call ratio shot up to 1.13. This is the highest reading since March 10, when it was 1.23.
If we use the equity only put/call ratio, we discover that for the last six days (through Tuesday) the readings have been over .70. That is unusual for a market that hasn't really budged (index wise) in the last week of trading. You can see the 10-day moving average of this indicator is about to stretch into the area it has peaked in the last year. Well, with the exception of that wild ride we saw in December.
Based on the fact that the intermediate-term indicators have only just rolled over it would not surprise me to see this moving average top out over .80 this time around.
The indicators are either just now rolling over or about to do so. The McClellan Summation Index turned down over a week ago and never lifted during last week's two day rally. Here it is with a chart of the Russell 2000.
Speaking of the Russell 2000, it was a bright spot in the market on Wednesday, so it has not broken that 1720 area yet. I would like to see that broken ($170 on Russell fund (IWM) ), because I like to see if we can get some big increase in bearishness. I also want to see it broken, because I like to see if the number of stocks making new lows increase or contract. That's the only way to tell if selling is increasing or drying up.
In the last few days we saw the Daily Sentiment Indicator (DSI) for the Volatility Index fall to 16, which had me make a call for a bout of volatility in the market. Typically a bout of volatility does not come about without getting some extremes along with it.
Wednesday saw the DSI for bonds stretch to 77. Of course I find that curious since in October I believe we got close to single digits. Don't get too bullish on bonds here, especially if they rally some more.
We also saw the DSI for gold back at 85. Along with that the reading for the Dollar Index is 23. I still lean bullish on the Dollar Index and if I am correct then that means don't chase gold up here.
Finally the DSI for oil fell to 10. It was 20 on Tuesday. Rarely does the DSI fall or gain 10 points in a day, but that's what volatility brings us. I don't much like oil right now, but with the DSI that low, I would think the energy exchange-traded fund (XLE) should bounce off $75-$77.
I do not think we are done with volatility yet.
