The selling in the market was -- at least to me -- concentrated in the stocks that have been up. Oh sure, folks sold some of their beloved tech stocks, but it was more about selling what has been a winner. For many stocks it was just profit-taking that was much needed.
For example, folks have been selling the staples names for weeks now, but in the last two days it has accelerated as we've seen the staples exchange-traded fund (XLP) come within spitting distance of the uptrend line, having given back almost all of the April gains. XLP probably bounces from that line.
Or the homebuilders have finally seen some selling and are now down in May. But has the chart been ruined? Not at all. I suspect it eventually makes its way down to that line.
But the culprit of almost every decline in the last two months was somehow not the culprit this time. The Bank Index managed to finally get to that resistance at $80 I discussed last week and even managed to stay green on the day. I do not think the banks are done trying to rally, but that resistance is going to be tough to get through the first time up here.
Even the small caps had a decent day -- for the second straight day. But the Russell 2000 fund (IWM) also got to resistance at $180 (1800 for the Russell 2000).
But the bottom line is that none of the indicators changed much. The McClellan Summation Index has still not turned upward. The number of stocks making new highs is still pathetic. The number of stocks making new lows does not -- or has not -- expanded.
The one thing that changed this week, which I noted yesterday, was sentiment had gotten decidedly more bullish. We looked at the 10-day moving average of the put/call ratio and how low it was getting, but on Monday we had the equity put/call ratio under .60 for the second day in a row. The last time that happened was in the final days of January.
If that doesn't tell you how folks -- at least until Tuesday -- had gotten more bullish, then let me note that the put/call ratio for the Volatility Index had fallen under .20 on Monday. The last time it did that was March 7, which was just before the big bank plunge.
When it comes to the VIX put/call ratio, it is my view that the pros play the VIX options, so when they get so loaded up with calls as they have, they tend to be right more often than not. Couple that with the Daily Sentiment Indicator (DSI) for the VIX having gotten to 10 last week and it's a recipe for more volatility. The DSI for the VIX is now at 24, so it has moved up quite a bit. I still think we should see some more volatility in the market.
