A New High That's Tough to Get Excited About
Let's look at bulls vs. bears, highs vs. lows, and breadth.
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One week ago, the American Association of Individual Investors (AAII) showed a vast drop in bulls and a rise in bears. There were more bears than bulls. At the time, I said on its face, it is bullish, but there is no other sentiment indicator that confirms this level of bearishness.
On Thursday, we will see if that has changed at all, but I can tell you that the Investors Intelligence folks, who don’t jump around like a bunch of day traders and is not a survey of old people (I can say that because I too am old), doesn’t show anything remotely like that.
This week, the bulls were up to 49.2%, and the bears were down to 25.4%, which is the lowest reading in six weeks. And I know math is hard, but that looks like it’s about two to one for the bulls.
If we had, as we did in mid-January, a surge in bearishness, then I would be happy, as I was in January, to note it and say this is bullish. But it’s quite difficult to say folks are bearish when the only evidence is one survey.
In any event, the big-cap indexes did rally, and they managed to do it well before the market closed! That means we got to see what was up there, and I can tell you, it wasn’t much. For example the number of stocks making new highs on the NYSE, which I was complaining about yesterday since they were only 115 (not even over 150), came down to 78. It’s tough to get excited about that.
And, sure, breadth slipped away on Wednesday, with it being negative on the day, but I’m currently watching the McClellan Summation Index because it, during this entire month or so of chop, has refused to roll over. It may not be great, but as long as this indicator is heading up, it says the majority of stocks are heading up.
It will now take a net differential of -500 advancers minus decliners on the NYSE to halt the rise and more than that to roll it over. If that indicator rolls over and new highs are still lackluster, then I think we’d be staring at a rocky end to the month of February and maybe even into early March.
But mostly, we see stocks or groups come down to the breakdown level and they mill around and then rally. See the SOX. So far Microsoft is in that category as well. They tried to break the Homies and, naturally, ITB closed right at 100.
In fact, the only stocks that have truly broken, are ones that generally came from up high, not ones that were on the verge of breaking. Look at former fan favorite Trade Desk TTD. That stock wasn’t even threatening to break down when those earnings came out, and the stock opened down and hasn’t even had a bounce (it ought to bounce now that it has been a few days and is at support). Those are the kinds of breaks we have seen, not the ones that threaten.
Anyway, I think the chop continues for now.
