The International Securities Exchange Equity call/put ratio on Tuesday sunk to .96. That might not seem like a big deal, but it is the lowest reading and the first reading under 1.0 since mid-June.
That's quite a change in sentiment in just under two weeks.
Now, remember, my last missive before vacation? I discussed the International Securities Exchange Call/Put Ratio (which is different from the equity-only ratio). I noted it had moved to 1.40, a reading we had not seen since January. I took that reading as indicative of a change in sentiment. Remember, a high reading in a call/put ratio is akin to a low reading in a put/call ratio. Thus the change in sentiment that I sensed -- folks warming up to the market -- was exemplified in this particular indicator.
I know, people will see what I wrote about the ISE Equity ratio and say, "but the market has fallen nearly 10%." It has. But that's what volatility brings us, isn't it? Did you expect my call for more volatility to mean market moves would be gentle and calm? Of course you didn't. It's just that it's human nature to be surprised when we get a move like we had.
That's what volatility brings us, isn't it? Did you expect my call for more volatility to mean market moves would be gentle and calm?
Now let's talk about the Daily Sentiment Index (DSI), because there are signs from this particular data set that we need to be on our toes in the weeks ahead. The DSI works on a scale of one to 100, so extremes in the DSI are when readings are single digits or over 90. Remember my call for more volatility was because the DSI for the VIX had gotten to the low teens; it never got to single digits.
We have several different assets with DSI's in the teens and some in the single digits. I'll start with stocks. The S&P hasn't budged since last Friday when it was 13. Nasdaq has come down a smidgen to 15.
Now let's talk about currencies, since it seems everyone is fixated on them. The U.S. Dollar Index finds its DSI at 93. This is the second (or is it third?) reading over 90 in the last month. The Japanese yen is at 7. The euro is at 10. The British pound is at 13, the Aussie dollar is at 12 and the New Zealand dollar is at 13. Even our friends to the north, the Canadians find their dollar at 17.
Last week gold and silver got to 9.
And if that wasn't enough, we've got bonds at 13.
It's one thing for sentiment to get extreme in one instrument (for example the Volatility Index in early August) but it's another thing for it to get extreme in a host of assets as it is now.
The market is also short-term oversold using my Overbought/Oversold Oscillator.
The intermediate-term indicators are not oversold; they will take time and probably some more downside to get there.
But when I put all these "almost" extremes together, I know I am on the lookout for an oversold rally. I don't know if we need a smackdown under 3,900 on the S&P first, but I know we're getting close.