Investors always seem to need an obsession.
Just about a year ago the obsession was with the Volatility Index. Every person wanted the VIX to go to 40. I'll bet there were folks who had never had the VIX quote on their screen, but who all of a sudden put it on their screen and then decided they had a view on it and they wanted it at 40, although they probably couldn't tell you why.
One year later, there is a new obsession developing: Folks want to know if we're in a new bull market.
First of all, the same folks crying new bull market seem to be the folks who never managed to acknowledge we were in a bear market, so I'm not quite sure what their point is. They seem to be the type who scream bull market, but when stocks go down 20%, they don't want to acknowledge it, because the bull market is clearly just around the corner!
I have said before and I will say it again, I won't know if it's a new bull market until well after the fact. I did not know we were in a bear market until I looked back months-many, many months-later and could see the majority of stocks were in downtrends beginning in the first quarter of 2021. Yet officially there was no bear market until a year later.
For me labeling the market has never been a priority, so I won't start now. What I do know is that if the majority of stocks are heading up, there are more opportunities to make money on the long side. When the majority are heading down, it's easier to make money on the downside. It seems simplistic, but it works for me.
I also know that about a month ago -- in mid-May -- I began thinking we should see the down-and-outers play catch up. For three weeks, I was wrong -- dead wrong -- but in the last week, as the calendar turned to June, the down and outers have in fact found some love.
I also know that the McClellan Summation Index turned up a few days ago and continues to head upward. In my view it gives us a good idea of what the majority of stocks are doing. For the six weeks prior to June the majority of stocks were heading down. That changed with the calendar.
Will it change again? Probably. It's unusual for this indicator to go in a straight line; rather it swings up and down. For now the swing is up.
In addition, the number of stocks on the New York Stock Exchange finally saw a bit of an increase, although they remain far below the February peak
I suspect that the catch up trade I have been looking for that has finally gotten in gear is what will turn that divided sentiment into one cohesive bunch of bulls. In fact, I suspect in the next week we will see sentiment shift dramatically. Maybe a Fed pause/skip/whatever is what does it but that's my expectation.
One other point is that for the last five Tuesdays prior to this week, the S&P 500 was down on the second day of the week. That changed this week. The pattern has been down Tuesday then up the end of the week. I am always alert to pattern changes, especially when the Daily Sentiment Indicator (DSI) for the Volatility Index is at 9.