The roller coaster continues with the up-down-up-down action in the market. A month ago we saw a market split by those who were calling for an immediate retest and those who were saying there'd be a straight back up, "V"-shaped move to the high. It was easy, in early April, to understand both sides.
The S&P 500 had just rallied 30% off the lows and it was nearing resistance. That put folks in the bear camp. But the rally was so much stronger than many thought, which put many into the bull camp. I thought sentiment was split back then. It was my contention we were more apt to see ups and downs and go nowhere.
Using one of my favorite indicators, the Citigroup Panic/Euphoria Model you can see that in mid-April it had lifted off the Panic zone and was sitting in neutral territory. It is now into Euphoria.
Also, in mid-April, the 10-day moving average of the put/call ratio was still just over 100%. It had come off the extreme, but had not gotten to the point where everyone seemed to "believe" in the rally. Since then, it has fallen into what I would term the low end of neutral. It is not yet extreme in screaming complacency, but it is also not in the place where we can say "there is a lot of bearishness out there."
If we move to the Index put/call ratio, I would note that Friday's reading was 90%, the lowest reading since early March and the first reading not in triple digits since then. That's a lot of calls relative to puts for this indicator. Oh, sure, we can explain it away by saying it was options expiration, but that would be rationalizing an indicator.
This is my way of noting that I can't explain the incredibly bearish readings (quite extreme too) that we see in the American Association of Individual Investors' weekly survey. And for those who ask about the Bank of America Survey that is screaming how bearish folks are, I am not familiar enough with that to comment on why it is so different than the Citigroup one, or quite frankly why the options ratios are so different, as well.
My take on sentiment is that it is mixed, but leans much more toward complacent than not, but as we saw midweek last week, two harsh down days and folks were buying puts like there was a fire sale, which was similar to August 2018 that we looked at a week ago, when the Citi Panic/Euphoria tagged Euphoria and the market had a quick decline. So any decline from here, especially one that cracked under the recent trading range would probably see a return to bearishness in a hurry.
The key would be what the indicators look like on any rebound from there, and if they look similar to late summer/fall in 2018. If the market indexes rebound and the indicators decline, that would become very problematic for the market. And that would be when I would look for a retest. For now the roller coaster seems to continue.