Posting to Twitter can help us test the waters sometimes. That's why I like to post a chart on Twitter to see what sort of bullish or bearish reaction it gets. Other times, I just post charts because they are interesting and I have no idea whether they'll garner a reaction. But an astute reader once told me that he looks at my weekend Twitter feed to see how many "likes" or "retweets" a bullish or bearish chart gets, so he can get a sense of the sentiment.
That comment came to mind this weekend while staring at some long-term charts of the S&P 500. I noticed that the pattern in the red box -- which is approximately 13 years in duration -- looked somewhat similar to the pattern in the green box, which is a mere 18 months long. I was struck: They both reached a high, had a significant fall after, rallied back to the same or similar high, and then came down and made a lower low than the first low. And then, they rallied right back up to the high.
Just because there's a pattern on an index chart, doesn't mean I like it. I would rather pay attention to the internal market indicators. But it doesn't mean I shouldn't notice similarities.
Yet, this particular chart -- which is bullish if you agree that the patterns are similar -- seemed to capture a bit of attention. As of Saturday afternoon it had over 250 "likes" and 31 retweets. It seems to me just from this anecdotal evidence, folks are leaning bullish.
But I also posted the chart of the Citigroup Panic/Euphoria Model. You can see it tagged the underside of Euphoria this past week. Notice it did so in early August, then backed off a bit, and then crossed into Euphoria in September. The major indexes did make a high in early October, so timing-wise it was not a coincident, but it was an early warning sign.
This particular chart -- again as of Saturday afternoon -- had nearly 190 "likes," but it had 65 retweets. This chart looks to be possibly leaning bearish, since it clearly was more bullish when it was in Panic mode.
Sticking with the anecdotal evidence, Jeremy Siegel, the famed professor of finance at the Wharton School of the University of Pennsylvania, was interviewed on television Friday afternoon. He is generally bullish on the market. A month ago he was relatively cautious, believing the best the S&P 500 could do was an additional 5% over the course of the year, and it was vulnerable on the downside.
Friday, however, he saw nothing but blue skies. No mention of caution, no mention of a 5% limit on the upside. That's just over the course of one month.
My takeaway is that we're moving closer to giddy than we were. If the Russell 2000, which is on the verge of crossing 1600, can cross over that resistance we will likely get to giddy quickly.
Should we get to giddy and the number of stocks making new highs is still not confirming the rally and the breadth has not expanded, then we'd be set up for a correction. I find it curious that we are staring the month of May in the face, and we haven't seen a parade of articles telling us to, "Sell in May and go away." At least not yet.