Traders May Not Be Giddy, But They're Counting on a Rally From Santa
Some of you questioned why I thought sentiment was complacent. Here's why.
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In my Friday column, I said I thought sentiment was complacent. Some folks took issue with that.
You see, I was told, that tech stocks had been decimated in December, and how was it possible that there was complacency when a beloved semi stock like Broadcom (AVGO) had been clocked for twenty percent in a week. There was no mention that it had run 25% in the weeks prior.
Oh, sure, I will give you that, after having been green for ten or twelve straight days. (XLK) , an ETF to be long tech stocks, had come down five percent in a week, but come on, where do you see bearishness?
I think on Wednesday afternoon, when tech stocks were leading the charge on the downside, folks got bearish on tech for maybe an hour or two (green arrow on chart). But then came Micron’s (MU) earnings, poof, like that, the concern for tech flew out the window. And then the valuation on OpenAI that was chatted up as ‘code red’ only a few weeks ago, became a reason to rally.
And didn’t I say last Wednesday that I thought the semis were getting oversold and should rally for the Santa rally? They have rallied. And you know what a mere two days of rallying has done? It has made sentiment very complacent, heading toward giddy. It’s not there yet.
I do a weekend Twitter poll every week and have done so for six years now. Each week, I ask what you think the next 100 points in the S&P will be. This week, 73.3% voted up. That is the highest reading for up since April, which then saw the S&P down a fast one hundred points before bottoming the following week. But I don’t know how you can possibly compare the current market to April, when we were literally coming off of panic lows.
The AAII folks are bullish, the Investors’ Intelligence folks are bullish. Both had more bears than bulls in April. The folks at NAAIM had taken their exposure to the market under 40% in April; now they are on margin, just over 100%.
The Consensus Inc. weekly survey now shows the bullish percentage at 74%, the highest since November 2024. In April, these folks were at 42%—for three weeks straight!
I do not think folks are giddy the way they were in late October. Back then, the Daily Sentiment Index (DSI) for both Nasdaq and the S&P were clocking in at 80+. Now those readings are in the mid-60s. Back then, the DSI for the VIX was under 15; now it is 21. I could go on, but you get the point. This is not April, nor is it October. I think it is just everyone staring at the calendar thinking ‘Santa Rally’.
Friday’s rally did bring us a rally in the semis. But it’s the same old story: when Nvidia (NVDA) rallies, it does so at the expense of most of the others. Breadth was flat on the nearly 60-point rise in the S&P. Two days of rallying has not sent the McClellan Summation Index heading back up. You can thank NVDA for that.
