Did you see the way the market started the day down and then mid-morning it picked up and rallied? That's just one reason why it is difficult to be short in this market. But did you also see the way the final hour of trading saw the market give back its gains rather handily? That's one reason why it's hard to add to new positions when the sentiment is elevated.
The best thing the market can do is pull back, get everyone bearish quickly and rally again. Mostly because that would relieve the sentiment that has gotten so elevated for the S&P. The curious part is that Nasdaq has now been green for seven straight trading days and the Daily Sentiment Index (DSI) for Nasdaq is a relatively neutral 73 (the S&P's did not budge from 88).
Nasdaq has not gone so long without a down day since it went eight in a row back in August (which oddly enough ended on 8/8 if you're into numbers...). In the last two years (since January 2017) it has gone seven straight four times. It went to eight as noted above. It went to nine and once it even went to 10 days in a row (that one ended in late July 2017).
The reason I point this out is because obviously the longer it goes without a down day the higher the chances are that we do get a down day and a pullback would be a good test to see if folks get bearish in a hurry.
Staying with sentiment, the Investors Intelligence Bulls chimed in at 51.9% so they have finally trudged over the 50% level and are working their way higher. I would call this level neutral to elevated but it is not a danger zone. Over 55% and we're throwing yellow caution signs up and over 60% it's red ones.
For me all of this leaves me in the same place I have been: a rise in volatility would be welcome but it seems too soon to get bearish.
Last week I showed the chart of GLD, an ETF to be long Gold as I looked for it to bounce off that uptrend line. Luckily it had a quite a bounce off that line and is now coming into some solid resistance as it closes in on $128. Please note though: the DSI for Gold tagged 90 on Tuesday. That's usually a good time to take some profits.
The curious part is that the sentiment for the U.S. Dollar is not extreme on either side. I have been in the camp that the U.S. Dollar Index is in a trading range. It's a wide one at two cents (95-97-ish) but it proved to me it didn't want to break down in late January nor did it want to break out last week. I know so many of these correlations have broken down but it seems to me unless the buck is going to break 95 in a hurry GLD is probably not breaking out over $128 imminently.