Market Change Could Be First Sign of a Serious Pullback
A spike on Monday could be what it takes to get investors from complacent to giddy.
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The bears were certain the stock market would tank on Monday morning but the bulls had other ideas. Yet this is exactly the sort of thing I was talking about in Sunday's column and what it would take to get folks from complacent to giddy.
Action like we saw on Monday will help move that along. You see, if you came in thinking "we’re going down" and within a few hours the market was back to green, you'd have to rethink your view, wouldn't you?
And if you were thinking "pullback" and we couldn’t get one with all the latest news, you might be thinking, "hmm, I guess not."
I know this sounds quite anecdotal but I have real data to back up my "sense." The ISE Equity call/put ratio jumped up to over 3.0. That is a rare event. As a reminder, this is a call/put ratio so when it is high it means there is a lot of call buying.
The last time we saw a reading over 3.0 was October 8, 2025. And prior to that, we saw three such readings to start last year. If you look at the chart of the S&P for those two periods, you will notice neither instance marked a top. Oh, maybe for a day or two.
But what I thought was interesting was that, in both cases, it was more like a shot across the bow. We dipped and rallied again to a marginally higher high and then came a much more prolonged decline. Obviously, the decline that began in February 2025 was much deeper and more prolonged than the one in November, but the pattern is similar.
What I want to focus on, though, is that this indicator went from complacent to giddy. On Sunday, I noted some possibilities to get some sentiment indicators to giddy such as the Bull/Bear Ratio from the Investors Intelligence survey (out on Wednesday) getting over 4.0.
My expectation is that the Overbought/Oversold Oscillator will be back to an overbought condition by Friday, so while we got a little spike in the VIX on Monday (finally!), I would say that if we do get some of those other sentiment indicators slipping toward giddy as the week progresses, that’s when I would look for a more serious pullback.
For now, I would just point out that everyone’s favorite group (banks) did in fact pull back since we looked at the chart a week ago. I know there are big bank earnings out this week that can change that, but thus far the chart is working.
(XLB) has been coming along to the upside. Note that there is a short-term target around 50, so it’s getting a bit stretched up here.
And I know I have been harping forever (well, OK, for a month at least) that the Utes feel like they are trying once again to bottom yet they just sit there, threatening to break down, but not out. I would love to see them get up and over 1080, preferably before we get back to overbought. My patience is wearing thin.
