They're Scooping Up Calls Like Sale Priced Taylor Swift Tickets
The market has rallied since I went on vacation but the indicators are mixed as to whether we're overbought or oversold.
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All we needed to do to get the market—and bonds!—to rally was send me on vacation. I am happy to oblige!
Hopefully, you saw the note I put out last Wednesday morning showing the Investors Intelligence bulls had dropped to 42%, the lowest reading since the fall of 2023, and the bears had soared 13 points to 32%, the highest reading since that same time period.
On Thursday, the American Association of Individual Investors (AAII) was similar as the bulls fell to 25%, and the bears jumped the fence so fast they skipped right up to 40%. So, with this group of day traders, we had far more bears than bulls. As you know, typically, I scoff at AAII, but only when it is the only survey turning bearish (or bullish). But in this case, it was a confirmation of the move we had in the Investors Intelligence survey (which I put more weight on).
Then, last weekend, we saw that the Consensus Inc. Bulls got down to 58%. This is not an extreme (they were 39% in the fall of 2023), but it is a big move from the 75% we saw in December. So here, too, we had another big change in sentiment.
The options ratios, though, refuse to budge. They continue to show calls being bought like they were Taylor Swift concert tickets offered at a discount: scooped up fast! For the time being I am willing to ignore it but I suspect with the rally underway we will see the other sentiment indicators shift back to bullishness pretty quickly. But I will wait to see it.
The Overbought/Oversold Oscillator has finally made its way toward the top of the page. There are still some red numbers to be dropped this week so I don’t think this is fully overbought yet.
If we use the McClellan Summation Index, which has turned upward, and what it will take to turn it back down, we can see it will take a net negative of -4000 advancers minus decliners on the NYSE. That’s a high number, and using this metric would imply we are already short-term overbought.
But wait, there’s more. There is the more intermediate-term 30-day moving average of the advance/decline line. This is not overbought; it is still oversold. I don’t know how the next few days play out because after six straight days of good breadth, we are a bit overbought, but the intermediate term is not yet overbought, so I believe pullbacks will be bought for now.
Finally, there are the bonds. They have seen rates fall back (from that very thick line I drew that upset everyone!). There is some support in this 4.50% area on this chart of yield on the Ten Year. If we see yield bounce a bit and then come down again it wouldn’t surprise me at all.
That’s because I had thought the Utes would/could rally to that 1000-1020 area and fail. But they have cleared 1020. So unless they turn south and collapse from here I think we will see rates come down some more.
