There was a chart floating around early Tuesday morning from BofA Securities (formerly Bank of America Merrill Lynch). Since it is not my chart and I don't have permission to reproduce it, I will try to describe it to you.
Basically it is the exposure fund managers have to equities. And it has sunk to lows not seen since the financial crisis of a decade ago. What struck me was that it had a similar drop in March of 2008 (it's hard to tell exactly on the chart, but it looks like it is that time frame), when Bear Stearns went under. Here is the chart of the S&P from 2008 -- January through July -- with the blue arrow showing us the Bear Stearns' low. We rallied about 15% after that. And the BofA chart shows fund managers did get longer equities after that, but they never got terribly long and then their exposure fell even more dramatically, as we headed into the fall of 2008.
In addition to that chart, it showed that one of their largest "long" positions was cash. I don't have much history with this particular survey, but it reinforces my view that the Sentiment Cycle chart I have shown here several times in the last two months is alive and well. If the market keeps rallying into July, there may be some catching up on the part of fund managers and that could or should take us to the "Euphoria," level in terms of sentiment.
Sticking with sentiment, the Investors Intelligence bulls moved up to 50%. They were 42% just two weeks ago, so they are moving quickly. If they move back over 55%, I'll say they are complacent. If they get over 60%, I'll say we've gone to giddy.
As for Tuesday's market, breadth was fine, if not great. It was enough to keep the McClellan Summation Index heading upward. It will now require a net differential of -2000 advancers minus decliners to halt the rise so this indicator is finally dipping a toe into overbought territory. At -4000 issues it will be extremely overbought.
The number of stocks making new highs fell short of the peak readings we saw on June 7, but when we consider that Nasdaq had 140 new highs on Tuesday and 152 on June 7, I'm willing to give it a bit more time to increase further.
When you look at the chart of the Oscillator, you will probably be surprised to see it ticked down on Tuesday. That's because it is overbought. We replaced a big positive number with a not as positive number and so it ticks down. That's how momentum works. I still say the Oscillator is working off the overbought condition, so I don't view this as a negative.
I have no idea how the market will react to the Fed on Wednesday, but I'd say keep your eyes on the Russell 2000. It closed exactly at 1550, which is where the 200-day moving average line resides. Remember if it can get up and over this level, over those key moving average lines, it can improve. If it slips back down, those moving average lines become problematic.