Will Santa Turn Stock Traders Giddy? Metals Traders Are Already There.
Gold, silver, and P metals push toward extremes, yet indicators remain stubborn. Could this be the calm before the storm?
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Yesterday I said sentiment is not like it was in April (panicked and bearish), nor was it like it was in October (giddy), but boy, the action in some of the groups on Monday was just like it was in October.
Rockets, Quantum, and metals were hot. Not hot enough to get sentiment to giddy, though. The Daily Sentiment Index (DSI) for the S&P is 68, and Nasdaq is 67. In late October, those readings stretched up over at the same time the DSI for the VIX was kissing single digits.
The DSI for the VIX is now 17, so I do wonder if, when the Santa Rally is over, will we see it back in that ‘tween’ zone? As a reminder, between 10-15 on the VIX without a high reading in the indexes, and I think it means expect volatility. A low reading in the VIX, coupled with a high reading in the indexes, and I’m thinking ‘giddy’. We’re still in the complacent stage, as best I can tell.
But surely the metals are giddy? For the fourth straight day, the P metals—palladium and platinum—are at 88. They are high, very high. Giddy would be over 90. I am shocked they didn’t get there after Monday’s move, but that’s why it’s so hard to get an extreme that matters.
Gold and silver are only at 83 and 84 respectively, so they are getting into the yellow zone but not at giddy yet either.
I do wish I could tell you Monday’s action changed the indicators, but it did not. I can, however, tell you that similar to what we saw in October, the Small Cap 600, what I call the profitable stocks, have been underperforming the IWM, the unprofitable stocks, since the rally started late last week. In that respect, this is similar to that October period of time.
We will have to see if the ratio makes a lower low, but as you can see, the December high is lower than the November one. When the ratio is heading down, the Small Cap 600 index is underperforming the Russell 2000.
Speaking of ratios, the equal weight (RSP) has also not taken the lead since we started rallying late last week. Look how great it did on a relative basis in early December. It might still work out, but as I have noted, it does not look to me as if this will be a runaway train.
If it can flesh out a bottom (the ratio), I would happily get on board, but I want to see more than a week or two of outperformance. And I definitely want to see the speculation in unprofitable stocks come to an end.
Away from all of that, my old friend XLB has caught some fire—a very small one, maybe with only twigs, no yule logs here! —and now finds itself up against some serious resistance at 46. This is one group no one even talks about, and has basically been a big fat nothing all year. I would love to see a breakout.
