When the market is riding high, a common refrain we hear is, "I would like to buy a pullback."
The problem is that we don't get pullbacks on no news. Usually, we get pullbacks on news and often that news is scary enough to keep folks from wanting to buy the pullback. Walter Deemer, a Wall Street legend, says, "When the time comes to buy, you won't want to."
I do not think sentiment is panicky. I do think it is turning sour. There is a difference. When it is panicky, volume soars, as folks panic with a "get me out" mentality. We haven't seen that. When it is panicky, we tend to have a fast market, which we haven't seen.
What we have seen is the volume in the Invesco QQQ fund (QQQ) rise -- not to the panicky levels we saw in February and March -- but it is getting persistent (thus the sour description instead of panicky). High volume sell offs do tend to see a bounce.
The Volatility Index is even getting jumpy. It's never easy to know when it has jumped enough, but take a look and notice that it tends to see twin peaks. That means we tend to see a rise in the VIX, a back off of sorts and another rise. I think we are likely to see the first peak within days.
Then there is the Oscillator. As I noted earlier this week, it appears oversold, but it is only modestly so. That is simply the way the math works. However Nasdaq is more oversold than the NYSE.
If I do the exercise to see when the Nasdaq Momentum Indicator will get oversold I still come up with Friday, May 14 for a minor oversold reading and Thursday, May 20 for a better one. That means Nasdaq is stepping into the oversold zone within days. I will show the chart as we get closer.
Then there are the number of stocks making new lows which contracted on Wednesday for the first time in more than a week. The contraction came on a significantly lower low in Nasdaq, which means some of the selling dissipated. There were over 100 fewer stocks making new lows on Nasdaq Wednesday vs Tuesday, a small positive divergence.
The put/call ratio has been climbing. Wednesday's reading was 1.0, the first reading this high since early November. The 10-day moving average of the equity put/call ratio is getting much closer to where it was back last fall, as well. Does it show panic? No, but a decided sourness to the market? Yes.
Think of it like this: There was a time we couldn't get this moving average to stay over .40 and now it is in the mid .55 range.
The intermediate-term indicators are not oversold. The intermediate-term sentiment indicators, so far, do not show much bearishness. But that doesn't mean we shouldn't see a bounce. If the PPI, out in the morning shows inflation hot and stocks don't react in the same manner they did to Wednesday's hot consumer price index reading, then we'll know the market is due for a bounce.