Was it just Friday that folks were so happy with the market, buying enough calls relative to puts in individual stocks, enough to take the equity put/call ratio down to 51%? Then came Monday morning and Nvidia (NVDA) and Caterpillar (CAT) disappointed and it seems the bulls retreated and the bears came back.
We know the bears came back, or at least the put buyers came back because the equity put/call ratio jumped back up to 76%. That is quite a mood swing in just a 24 hour market period. That 76% reading is the highest since January 11. So as you can see on this chart of the S&P the put buyers were dead right for one day. That's the blue arrow on the chart. Then they were dead wrong for a week.
I think this sentiment shift is part and parcel the earnings reports but I think it's also the nature of where we are in the market. For over a week the S&P has been in a 50 point trading range as it sits at longer-term resistance so when it gets up near 2,675 which is the top of the short-term range folks get antsy for it to break out and when it gets near 2,625, the bottom of the short-term range, folks get antsy for it to break down.
And I get it -- it's hard to decide when we're working off the short-term overbought reading and are not yet back to an oversold condition. You can see the Overbought/Oversold Oscillator seems suspended in the middle of nowhere. For me, it hasn't come down enough for me to think we're oversold so I call it working off the overbought condition.
Then there is the 30-day moving average of the advance/decline line, the intermediate-term Oscillator. It is pushing itself into overbought territory but it is not quite there yet. It seems to me this ought to get there next week (that's the math behind the indicator).
So we have the indexes at resistance and still sitting in limbo as they have for over a week. It's easy to see how sentiment is jumping around like a bunch of water bugs skittering across the floor. I suspect with Apple (AAPL) reporting earnings Tuesday we'll see many pin their hopes and fears on that. Then there will be the Fed meeting and more earnings.
So let's go back to the chart of the VIX that we looked at last week. It has been my contention that we should see some ups and downs in the VIX before it finally sets itself up to go higher (which I suspect it will do when/if we get that retest).
Some might think they are moving in lock-step and they are the inverse of each other (S&P and VIX) but to me the VIX has been pretty consistent when it comes to the pattern setting up. I will watch this as we head toward an intermediate-term overbought reading in February.