The market did it again. We had a big up day on Friday followed by a sloppy to sideways day on Monday. This has been the pattern we've seen and in my view this is what keeps sentiment from pushing over that edge into giddy territory. It stays firmly in complacent land.
There are a few differences in this pattern between last week and this week. First a week ago the put/call ratio for the VIX was 16% which is low. My view is that under 20% and there are far too many betting on a higher VIX which means a bet on a lower stock market. A contrarian would take the other side of that trade. The VIX was 14 when we got that reading. The VIX is now pushing down near 12. Why? Because the market rallied.
Now with the VIX hovering just over 12 shouldn't we should see the put/call ratio sink? Isn't this when we should see more folks betting on a higher VIX? After all the VIX has spent little or no time under 12 in the last year. Yet the put/call ratio for the VIX on Monday went to 70%.
For me 70% is within the neutral range of 20-100. Outside of this range and it's gotten extreme. But 70% is a far cry from 16%. To add to this the Daily Sentiment Index for the VIX is now 17. A week ago it was a more neutral 26. One more down day for the VIX and the DSI could tell us it's time for the VIX to rally.
So to me this is a change. Why bet that the VIX will crash through support when it hasn't done much of that in the last year?
The other change from a week ago is the McClellan Summation Index. A week ago it needed a net differential of -1800 (advancers minus decliners on the NYSE) to halt its rise and a bit more than that to roll over. As of today it has halted its rise already, so it runs the risk of rolling over if we have a day or two of negative breadth. Each time it has been on the verge of rolling over we have seen an up day so this week is a small test for this indicator.
The final difference is the number of stocks making new lows. I find it curious that a week ago the NYSE saw a mere 6 stocks on the new low list and today, with the indexes higher we have just over 20 new lows. The 10-day moving average is trying to turn up which was not the case a week ago.
All of this sloppy action though has managed to get the Overbought/Oversold Oscillators working off the overbought condition. My guess is we watch the VIX.