On Monday, Sellers Stayed Home, but So Did Buyers as Wall Street Turns Cautious

We have spent a great deal of time discussing sentiment of late, with several of my indicators reaching into giddy or euphoric territory and some just sitting on the edge (those I call complacent). So I was curious to see if Friday’s action (and Monday’s lackluster day) changed sentiment.

Anecdotally, I have been watching some of the Wall Street strategists, and one of them changed their view this past weekend. Another who was bullish a week ago had changed his tune as well, although in a much more subtle way.

Of the television folks, I noticed they, too, had changed their enthusiasm levels. I wouldn’t say any turned bearish; it was more like a level caution that had not even entered the conversation before Friday’s action. By Monday, they expressed some concern.

But did we see anything statistically? I noted the put/call ratio jumping to .97 on Friday (the highest since early April), but Monday it remained elevated with the reading for the total coming in at .92.

I would remind you that back in early February that the ISEE call/put ratio for equities slipped under 2.0 and then stayed there, and we have not seen any readings sub 2.0 there yet. But Friday certainly changed some views.

So, did we get saved on Monday? Yes and no. We got saved because the selling dried up. But was there any buying? It didn’t seem it.

I have highlighted this period from last autumn on the chart of my Overbought/Oversold Oscillator several times before, so we should revisit it again. The Oscillator vacillated back and forth over the zero line for months, and so far, the current environment is witnessing a similar action for the last 4-6 weeks. I still think we could be in such a period.

Even if we look at the more intermediate-term 30-day moving average of the advance/decline line (an intermediate-term oscillator), it has dribbled down under the zero line, but the math behind it says any oversold bounce is unlikely to be lasting. So here too, we may be in for a period of back and forth for the indicator. In the fall, that meant the Russell had to fall nearly ten percent.

I think it would be good if we could get the market to come down some more later this week. It would get the shorter-term oscillator to an oversold level by next week. But mostly based on the way folks felt about Friday’s decline and Monday’s pathetic rally, I think we’d see a vast change in sentiment if that occurred. I’m not quite sure what a slog of chop would do. Probably keep the frustration levels and complacent levels high.

We’re not really set up for a great rally right now, but getting the market to do something to change sentiment would be helpful.