What Does it Take to Get a Bull to Jump a Fence? A Rally.
The Bulls did an unusual thing. They jumped by a greater level than is normal. What's next?
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One of my strong beliefs when it comes to market sentiment is that folks tend to mosey to the fence, not jump the fence. It takes time for them to become more bullish or more bearish. But every once in a while, there is such a shift that I am left in awe.
This week, the Investors Intelligence bulls jumped the fence. They have been milling around, sharing cocktails at the fence, some have even sat upon the fence, dangled their legs over, considered making the move, but in the end, they sat there. This week, that changed.
The bulls jumped up to 51%. On its own, there is nothing special about 51% (upper 50s to 60s is extreme), but when the Bulls jump by 12 points, I take notice. And I do so because in the last 30+ years, they have only jumped by ten points or more two other times. What’s more, those other two times the jump came mere weeks (2-3) from the low. This time, it took nearly three months for the jump to occur.
Sure, the Bulls haven’t been this high since January, but they were over 60% in December. So by the time January rolled around, they were already coming down.
Naturally, I went back and looked at the two other times this occurred. And yes, let’s remember this is a small sample size. October 2002 was the end of a long bear market, as we were nearly three years into the bear at that point. Notice it occurred about two weeks after the low, and most of the rally was already done. We crept a bit higher and went sideways for two months before coming right back down again.
In October 2014, we see that it took about three weeks from the low before they jumped the fence, and this time they did so after making a higher high (similar to now). But here too we crept upwards and about a month later gave it all back, then we mostly went sideways before heading up and going sideways again.
In neither case did the market just blast higher. Maybe this time will be different, but the Daily Sentiment Indicator (DSI) is now at 83 for the S&P, so that runway is feeling a bit short, especially if the market rallies on the Employment number Thursday.
There was one other sentiment shift on Wednesday: the ISE equity call/put ratio was 2.72 which was the highest reading since March 17th. There were some higher readings in February, but recall just three days ago, I noted how the equity put/call ratio (CBOE) had not tumbled under .50 in quite some time. The ISE equity ratio has now shifted. So, sentiment has clearly jumped the fence in some of these indicators. None are extreme, but they are pushing on extreme.
Wishing everyone a Happy Fourth of July!
