Sentiment Is a Funny Thing, but the Mood Has Shifted
People like to see what they want rather than what the data is telling them. Still, we're starting to see opinions begin to shift.
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Was it just two weeks ago that folks were quick to tell me I did not understand sentiment because the AAII had more bears than bulls? They told me this is bullish. I said yes, on its face, it is. But I also said there was no confirmation from any other sentiment indicator I follow. AAII was an outlier.
Sentiment is a funny thing when it comes to stocks and markets. Several weeks ago, when everyone was convinced higher rates were on the way, I showed the chart of the yield on the 30-year bond, noting that I had this 20-year trendline that sat on the chart (I just kept extending it). The DSI was single digits, so I did not think rates were flying through 5%.
Here we are about six weeks on, and now the chatter has turned to ‘growth scare’ and ‘slowdown’. I am sure there are still folks looking for higher rates now, but they do not seem to show up in my social media, nor do I see them on television.
Now we have the momentum stocks taking a beating these last few days. So, have folks turned bearish? Not really. But are we seeing some little shifts? Yes, we are.
The first example is that the put/call ratio chimed in at .99 on Monday. Shockingly, that is the highest reading since January 2nd. Even the ISE Equity call/put ratio came in under 2.0, the first such reading in nearly a month. So yes, something shifted on Monday, at least with the options players.
I even saw two well-known strategist types soften their bullish tone. One gave us higher percentages for ‘what could go wrong’, and the other just bit the bullet and downgraded stocks to neutral.
But did any of those charts we’ve been watching break? Microsoft came the closest. It did what the Homies (ITB) did last week: threatened all day and then closed right smack at the level. That settles very little.
IWM bounced right off of 215. That, too, settles very little.
I will note the breadth of the market was pretty good on the NYSE with only 55% of the volume on the downside. Net breadth was -260, so we will see the Oscillator ticked up but it is not oversold.
I even checked in on the Nasdaq Momentum Indicator to see if that showed an oversold condition coming our way. It’s at least a week away. Can it jump the gun? Sure, but honestly, it’s only been three down days. To get oversold, there should be more.
This leaves us where we have been: nothing has really broken (yet), the best we can do is chop, and more likely, the latter part of February and early March should bring more volatility not less. Perhaps we will see a few more strategist types rethinking their views soon.
I want to leave you with the chart of the Utes. They have been creeping upward but still unable to get over 1040. I think that makes them vulnerable to a pullback as well.
