Typically after a big down day such as we had on Friday, we see a sentiment shift. Maybe we see it in the folks paraded out on television, the folks on your Twitter feed, or more specifically, in the indicators. It is remarkable to me that the only place I have seen the shift is in the put/call ratio of the VIX.
It hasn't showed up in the total put/call ratio, nor the equity, nor the ETF or the Index ratio. But the put/call ratio for the VIX has been under 20% for two consecutive days. To show you how rare that is, going back to January 2009 (10 years) we have seen back-to-back low readings like this all of eight times. That's less than once a year.
As a refresher, this means there is a lopsided number of calls being bought on the VIX. A higher VIX is usually a bet on a lower stock market. But is it also contrarian when these folks get so persistent as to get consecutive readings so low? What's fascinating is that in 2014 this occurred three times. Two were bearish and once was bullish for a few days before coming down again but over the course of the next two months it was mostly sideways for the market
The last two times it happened was quite bullish for the market overall though. October 2017 saw three such consecutive readings and then there was December 21st and December 24th which we know was the recent low in the market.
I'll leave it that I think much of the complacency that had built up in the market last week has been wrung out of the market, but I don't think we have seen a real shift to bearishness. Another example of complacency coming out of the market is the 10-day moving average of Nasdaq's TRIN which we looked at last week when it was quite low has begun to rise. Note that the low readings have been accompanied by corrections in Nasdaq which worked again this time. It has already lifted from .80 to .85.
While everyone is focused on the bonds (more on that below) I find it interesting no one is focused on the Transports though. They closed at 10,000 on the nose. It looks to me like 10,000 is an important support level. Perhaps if we get a hard breakdown people will take notice and we'll see sentiment shift sharply in the market.
I still think that if we can have a few days of negative breadth this week we'll get oversold again for an early April rally. You can see Nasdaq's Oscillator has already pushed back under the zero line.
Finally on the bonds, The Daily Sentiment Index did not move; it remained at 93. What did move is the DSI for Treasury Notes which pushed up to 86. It remains my contention that we should see rates go up this week.