Too Much Love or Lots of Skepticism? The Options Market Lets You Choose.
Two different option indicators offer differing opinions of market sentiment. It's a choose-your-own-adventure market. Also, gold.
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That was the first pair of consecutive green days for the S&P in a month. I call that a change in pattern.
You know what else is a change? Breadth has led. We looked at these charts a week or so ago, but here is the NYSE breadth with the S&P. I can’t remember the last time breadth made a higher low while the S&P made a lower low. So, we have another change.
Here’s another change: volume, specifically Nasdaq volume. Monday brought us the lowest total volume for Nasdaq since mid-December. Three months! Oh, there was one lower volume day, but that was Christmas Eve when the market was only open for half a day.
So, is the low volume bullish or bearish? Long-time readers will know I am not a firm believer that as stocks rise, we need to have volume rise as well, but to me, this is a change in sentiment. We’ve had never-ending speculation in the market, primarily in Nasdaq, where we had all those penny stocks clogging up the statistics, but with Nasdaq trading 6.3 billion shares on Monday I’ll say it is more normalized. Recall prior to this massive speculative activity Nasdaq regularly traded 5-6 billion shares a day, not the 8-9 billion we saw these last few months.
But you know what didn’t change? Call buying by retail. The ISE equity call/put ratio has only been over 2.0 twice since February 24th. I praised it by showing you the five and ten-day moving average of this metric. On Monday, they were back to buying calls like they were on sale. The equity call/put ratio soared to 2.71. This is the highest reading since January 22nd.
But wait, there’s more. Over on the CBOE the total put/call ratio was .93. That is highly unusual for an up day in the market. And that now makes eight straight days with the reading over .90 (and ten of the last eleven days).
So, the choice is yours on sentiment: was there too much love (ISE), or was there enough healthy skepticism (CBOE)? We don’t know yet.
What we do know is that the market is not yet overbought. Maybe the late-day whack and the fact that the Mags didn’t play along kept folks sidelined. Mostly, I think this continues to look like an oversold rally. Nasdaq is a little closer to crossing the zero line (therefore getting overbought) than the NYSE is.
One final note on Gold. It amazes me that the precious metal has moved so much without a whole lot of fuss, even with the recent move over 3000. I have a next measured target in the 275-280 area, and the Daily Sentiment Index (DSI) got to 85 on Monday. That puts it now in the warning zone. As a reminder, a reading over 85 is like a yellow light, while one over 90 is red. It could use a pullback to take it out of the danger zone.
