A long time reader emailed me on Tuesday and asked me if I thought folks were more afraid of missing the next decline or missing the next rally. At the time I responded I told him I wasn't terribly sure.
Two days ago I would have said the former more than the latter. In fact I said so right here on Monday morning (and late last week), noting that sentiment was quite sour as I cited several indicators to show this. I think I might have even said "decline" around midday when the market had a swoon. But by the time we recovered and rallied to solidly green at the end of the day it seemed -- anecdotally --like a transformation had taken place.
Everyone I saw on television was happy. They were all looking for a year-end rally (where were they last week?). They were all impressed with the market's ability to rally on Tuesday after being down. I honestly didn't realize it would take a few hours for folks to jump from bear to bull but it seems that has happened. Again, that is anecdotal.
I can tell you that for the third consecutive day the put/call ratio for ETFs was under 100%. So that too tells us there has been a shift. It has me a bit concerned because the last time we saw three consecutive readings under 100% was mid-June and the S&P pulled back 2-3% in the next two weeks. But as I have pointed out before, the 30-day moving average of this indicator is in a different place now than it was then. The green arrow is where it was in June.
I would be much more concerned about this particular indicator if it were near the bottom of the page.
The total put/call ratio's 10-day moving average continues to head down as does the 10-day moving average of the equity put/call ratio. This week's Investors Intelligence Bulls ticked down marginally; they now stand at 38.3%. The Bears ticked up marginally as well as they are over 20% (20.6%) for the first time since early May of this year.
As far as the market statistics are concerned breadth was terrible. It was negative on a day the S&P gained almost 9 points. The only good news is that it wasn't negative enough to turn the McClellan Summation Index back down. I can, however, report that one more day of negative breadth and it will turn back down.
This leaves the market in the same place it has been since last Wednesday. Still oversold (but not as much as it was) with sentiment quite sour (but not as bad as it was). It is still too soon to calculate when we would get back to an overbought reading.