Was it just three weeks ago folks were screaming about the S&P 500 falling to 2650? Was it just three weeks ago there was a chorus of, "but, but, but, the 200-day moving average line broke"? Was it just three weeks ago the put/call ratio zipped up to 141%, the highest reading since December?
Yes it was.
And now? Well, I would not say folks have jumped to the other side of the fence. I would say many of those who were on the bear side have started to make the slow climb over. We rarely see folks go from bearish to bullish or bullish to bearish, but rather they stroll over to the other side, with a lot of fence sitting in between. I think that is what we're seeing in the market now.
I can tell just by listening, but I can also tell you that the put/call ratio for exchange-traded funds slipped marginally -- and I mean marginally -- under 100% for the first time since April 16. Wednesday's reading was 99%, which isn't nearly the same as the extremely low 59% reading we saw in mid-April, but it signifies a change as folks slowly climb over that fence.
I don't think we're even at complacency yet, but notice the shift in the Investors Intelligence bulls this week to 50% from 42% two weeks ago. This week's reading is only through last Friday, so if the market doesn't fall apart between now and the end of the week, we should see more bulls next week. Once we get over 55% on this survey, we'll be into complacency again. Thursday morning's American Association of Individual Investors' weekly survey results could show a large change in sentiment, since it tends to encompass the market through Tuesday of the current week.
In the meantime, the Wednesday rally was in line. Breadth was OK, but not great. It keeps the McClellan Summation Index rising, and that tells us what the majority of stocks are doing. So for now, up it is. On the chart of the indicator below, I put an arrow at mid-April, where you see the indicator rolling over. Why did I put it there? Because as noted above, that was the last time we saw the put/call ratio for exchange-traded funds under 100%.
I think the market is in a different place now, though. One reason is that we are not yet overbought on an intermediate-term basis the way we were in April. Also in April there were weeks and weeks of complacency at our doorstep, which is not the case now.
The Russell 2000 has managed to claw its way back over 1550 for now, which is good. The Transports can't get out of their own way, nor can the Banks, which is not good. The market remains overbought in the short term, but I still don't see a collapse. I still think we'll work our way toward "Enthusiasm" eventually.