Seasonal Cycles for April Have Been Wrong
Sentiment has been more reliable. What does it say for the rest of the month?
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As long-time readers know, I do not put much stock into seasonality. In fact, if there is a seasonal pattern that works 99% of the time and I decide to play it, I can almost guarantee that it will be the one time out of one hundred that it doesn’t work.
However, I do recall back in February there was a lot of chatter about seasonality. The market was supposed to be choppy to down in late February (check, it was), but then it was supposed to perk up in March (it did not). Now I see that April is seasonally strong.
I don’t know about the entire month of April, but my indicators continue to say we’re not yet overbought (short-term). I have thought that the Overbought/Oversold Oscillator ought to make it to the zero line and likely over it, and my timeline is for it to get over the line is sometime later this week.
Will we be overbought by then? Much of that depends on what transpires early this week, but if the market is up (with decent breadth) early this week, then we’d be back to overbought late next week.
As usual much will depend on sentiment. As we headed into last week, we had finally seen panic. Now, I believe we’re in the rebound portion of the panic (green box on the Sentiment Cycle chart). On Friday, folks got awfully bullish awfully quickly, with the equity put/call ratio sinking to .43. A wall of worry is what bulls want to see, not a quick embrace of the rally.
However, on a more intermediate-term basis, the Citi Panic/Euphoria Model changed quite a bit last week when it fell out of Euphoria for the first time in more than a year. It obviously takes an awful lot to move this indicator, and while it is not in Panic, I would chalk this up to the positive side of the ledger.
Perhaps if I am correct and after this rebound we come back down again, this will finally move into Panic.
Away from that I continue to focus on the Semis (SOX). The ratio of the SOX to the Nasdaq ticked down Thursday but had a tiny little rebound on Friday. If this ratio cannot make a higher high as we get overbought, it will be a sign that I am correct that we are in that green box on the Sentiment Chart.
Sticking with ratio charts that need watching. I applauded the ratio of the Bank Index to the S&P last week when it had ticked up earlier in the week. But Friday, it went plop and is now back to where it was before the election. There are still some bank earnings to be released this week, but on Friday the market was not rewarding them.
I will end by noting that the DSI for Gold is back to 86, flashing yellow again.
