What Gets a Bull Really Excited? A Rally in Those Unprofitable Small-Caps
Let's take a look at the small-caps and see how sentiment is reacting.
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Yesterday, I noted the mid-caps. I know everyone gets excited over the small-caps like (IWM) , but there are so many unprofitable companies in there (as we have noted numerous times), so I like to look at SML, which is the S&P SmallCap 600, but the companies must be profitable.
Thus, I would like to note to you it was actually a little bit red on Thursday. I would also like to show you the chart of the SML relative to IWM because, as you can see, early November brought us a reprieve from unprofitable small-caps leading the charge. However, since mid-November, we’re back to unprofitable leading, and Thursday saw it in a big way as the ratio plunged.
But folks seem to like it when that unprofitable stuff rallies. Or at least it gets them more bullish. This week’s American Association of Individual Investors (AAII) survey showed a huge shift as bulls and bears jumped the fence. The bulls went up twelve points while the bears fell twelve points.
That puts the bulls at 44%, the highest since that late October reading when they were just shy of 46%. The bears fell to 30%, the lowest since January. How’s that for a sentiment shift?!
As long-time readers know, I prefer to use this survey when there is confirmation from other surveys because it tends to jump around so much. Unfortunately, the Investors’ Intelligence folks took last week off, so there was no report this week, but the folks at the National Association of Active Investment Management (NAAIM) did up their exposure to the market. They are now at 98.5. Their recent peak in late October was at 100.5, so while they never backed off too much, they have definitely increased their exposure.
The ten-day moving average of the put/call ratio has only notched down to .87. If it is low again on Friday, it might get itself under .85, but it is definitely not extreme as it was in late October.
The Daily Sentiment Index (DSI) for the VIX, though it still sits at 15, so any further rallying in the S&P and a down move in the VIX ought to take that to the lower teens.
All of this happens just as my Overbought/Oversold Oscillator will reach an overbought condition by the end of trading on Friday. I realize some might think, but the S&P hasn’t done a thing all week. They are correct as the S&P is up eight points on the week, but there has been a lot of movement elsewhere.
There is one other interesting tidbit to share: five of the last six Fridays the S&P has been up, and the one down was by a mere three points.
For example, the Transports (a group I have liked for months now, so it’s nice to see it finally do something) are now up nine straight days. I cannot believe folks are not yet fussing, but at nine straight up days, you know there is a short-term overbought situation.
I think we see a pullback next week.
