Did you enjoy the day of catch up? It seems many did.
Breadth stayed positive throughout the day. The Transports not only rallied but managed to close at the high of the day, something they have not done much of lately. The small caps even played along. Unlike the big cap indexes the Russell 2000 did not close near the high of the day but at least it wasn't near the low as so much of the last week had done.
Here's what I didn't hear much of though. Complaining. Like folks seemed to believe that the Utes being down three straight days is bullish. I won't say it's bearish but I am a strong believer that higher Utes are bullish for stocks because higher Utes usually mean lower interest rates. No one seemed to care or notice that (HYG) ,an ETF to be long High Yield bonds, closed red. Okay, it was only by a few pennies but typically just one red cent and the bears are howling.
No one complained that the number of stocks making new highs for Nasdaq peaked on Feb. 25 at 146 new highs. Today they stand at just over 100. That is contraction not expansion, and all that time the Nasdaq is 100 points higher than it was on Feb. 25.
This might all seem like nitpicking (and some of it is) but I'm only nitpicking because of the sentiment shift. The Daily Sentiment Index (DSI) tagged 90 for both the Nasdaq and the S&P. 500 They haven't done so in tandem since Jan. 22, 2018. Let's consider this for a minute.
This is a daily indicator, so a one or two-day pullback can reset it. But in January 2018 the market continued lifting for almost another week before those readings over 90 mattered. Please don't look at this as a "signal" but more of a sign that we've moved into a period of complacency.
For my purposes a reading in the 80s is a yellow flag while a reading over 90 is a red one. It means the runway for the rally is short. It's often not a great time to add to longs. Oh, I'm sure there are some exceptions out there and someone will surely cite several to me but I play the odds and the odds say buying when this indicator is over 90 is not a good idea.
Then there is the put/call ratio, which is low but not extreme. The equity put/call ratio chimed in at 52%. The lowest reading for the year has been 51%. For this indicator a reading under 50% is short-term bearish. The last reading under 50% was Dec. 28 (blue arrow) when it was 44%. Before you scoff and say, but that was right after the low and not bearish at all, please take a look. Three trading days later (red arrow) the S&P fell by 2% on the day. If we got a 2% down day now I'd bet the complacency that has built up in the last week would fly right out the window.
Now we wait and see if the Investors Intelligence bulls rise this week. They have hovered in the low 50s for several weeks now so a rise over 55% would be another shift in sentiment. I'm still in the camp of ups and down for the market so I wouldn't be surprised if we head back down later this week or early next week. We had a nice "down" in late February/early March which took the market back to an oversold condition on March 8. We're just trying to focus on the swings.
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