A Record Number of Bulls as Sentiment Ticks Towards Giddy
A strong day in the markets, but this correction isn't over yet.
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I would love to tell you that the indicators changed with the rally on Wednesday, but I can’t. The same way they didn’t change much after Tuesday’s decline, they did not change much after Wednesday’s rally.
For example, look at the Overbought/Oversold Oscillator. As discussed, it came down nicely after Tuesday’s decline, but it did not get to oversold; it just managed to cool off the overbought condition. You have to squint awfully hard to see Wednesday’s rally because we really are still overbought, or at least not yet oversold.
The McClellan Summation Index did not turn down after Tuesday’s decline, so it just kept meandering upward after Wednesday’s rally. The only thing of note I can say here is that, considering breadth has been on a tear, the cushion is not much. A net differential of -1000 advancers minus decliners on the NYSE would halt the rise. It would require more to roll it over, though.
To give you an idea, net breadth on Tuesday was -1560 and on Wednesday was +1560.
The Volume Indicator did a good job, having gotten overbought midweek last week when it tagged 55%. By the end of the day on Tuesday, it had gotten to 51%. At the end of the day on Wednesday, it is at 51.5%. That is not enough to get oversold. Under 50% would get this back to an oversold condition.
As for sentiment, I saw no panic on Tuesday, and I saw no giddiness on Wednesday. What I did see, though, was the Investors’ Intelligence Bulls rise to 59.6%. That is the highest reading since November 2024. The Bears fell to 15.4%. The low reading for this cycle was back in October (when we saw the market get giddy), when it got to 13.5%.
However, when we do the bull-to-bear ratio, we get 3.87. It has been my contention that a reading over 4.0 is giddy. Last year, it only got to 3.75 before we slid in March and April. I will say this reading is nearing giddy now.
Then there is the new ‘most hated’ group: software. The IGV could not even manage to turn green on Wednesday. Yet here it is at/near support and down ten percent in a week. As I have said, it is a top. How do we know? It’s got lower lows and lower highs. That means sellers are coming in at lower levels and buyers are coming in at lower levels. But nothing –or at least most stocks—do not go down in a straight line, which is why I still think there is a bounce coming here.
As for the overall market, I am not convinced that the correction that began late last week is over. The two down days were only enough for a little shakeout, not a decent reset.
