I saw where some Wall Street strategists tweaked their views on Monday. Oh I wouldn't call it a total change but I saw someone who had been talking retest take that off the table. I saw someone else notch up some targets they have on the S&P. It's all anecdotal but that is the way we see sentiment shift: slowly. We'll see if any of this is quantified when the Investors Intelligence readings come out later this week.
In the meantime the Daily Sentiment Index (DSI) for the S&P is now 73. Readings over 80 tend to be "too much bullishness" so if by some chance we see the S&P rally into the overbought reading at the end of the week I would expect the DSI to get over 80. If we are not up every day, it might not get there.
Some recent examples of the DSI showing too much bullishness was last week's reading on bonds at 82. Bonds promptly fell and the yield on the 10 Year jumped from 2.63% to 2.72%. Also Gold got to 80 last Thursday and we saw Gold lose 15 bucks in a heartbeat. So we'll monitor that closely as the week rolls on.
Elsewhere I promised to alert you when the Semiconductor Index (SOX) got overbought. It has finally gotten there. For this momentum indicator I plot the daily change in the net differential of the 50 and 200 day moving average lines. If it's losing more than 2 points a day I consider it oversold. If it's gaining more than 2 points a day I consider it overbought. We used this same metric with the Russell 2000 and the DJIA near the lows to show their oversoldness.
As you can see the SOX moved to over +2 on Monday. It is helpful to wait until it peaks and reverses back down but as you can see it doesn't tend to stay over +2 very long.
It is not always bearish, it is more a sign that momentum has gotten ahead of itself. I have noted each peak over +2 on the chart of the SOX below (for the last four years). Often, back in 2014 to early 2016 it meant the SOX would move sideways for weeks or months before falling off. In mid 2016 (points D and E) we saw fast sharp 1-2 day pullbacks and then it was off to the races. Point F, which occurred in November 2017 saw an almost immediate drop and re-rally but when we step back and look at the big picture the SOX never really made much more progress after that.
Since there is no clear cut way this unfolds I'll just note that the upside is likely limited until this indicator comes back under +2.
Away from that, market breadth continues to keep up and sentiment while creeping back toward bullishness is not yet extreme. I still believe we are more apt to see volatility rise in the next couple of weeks based on the upcoming intermediate term overbought readings.