Business as Usual, Even on a Fed Day
How did investors react to key economic data? They kept their interest squarely focused on the mega-caps.
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If you were excited early in the morning when the IWM topped 207 for the first time in weeks and you were concerned when it closed just under 204 then you understand what has transpired in this market.
It has become so top-heavy that no one really wants to own the small caps—or much of anything else—for very long these days. They are willing to trade them for sure. But own them? Not so much. That’s a far cry from where we were six weeks ago.
Six weeks ago breadth was great, volume was on the rise, the longed-for broadening out was with us. And then, like a bubble blown from a wand, it was gone.
As I noted yesterday, I expected the Oscillator to rise because of the math and because we were once again a little bit oversold in all the ‘others’. But did it get us anywhere? Not really.
We had better breadth if we use the advance/decline line but, when it comes to up vs. down volume, it was flat as a pancake, which, I admit, surprised me. When mega-cap stocks rally they literally suck the life out of everything else. That is the market we have.
The good news is that the number of stocks making new highs expanded (recall that on Tuesday the number of stocks making new lows on Nasdaq had contracted).
The bad news is that sentiment has gotten extreme, or is knocking on the door to extreme. I have been calling it complacent, but it ticked up this week. The Investors Intelligence bulls have topped 60% once again; the last time they did so was in early March. The bears are 17.6%; they were a bit lower in early March so the spread between bulls and bears is not as wide as it was then.
Then there is the Daily Sentiment Index (DSI). The VIX has been toying with an extreme reading for weeks now but never seems to get itself back into the single digits. It still hasn’t as it resides at 12. But the big change is that the DSI for the S&P is now at 87 and Nasdaq is at 88.
As a reminder, readings over 90 (and under 10) are red flags for me. We got close in early March, as we are now, although the VIX got to single digits then where it has not yet gotten there this time.
The last readings we had that were over 90 were in gold, silver and copper at the mid May highs. We didn’t get an immediate (i.e. the very next day) roll over but they did roll over and even with the early June rally in these commodities, they are still under the levels they were in mid May.
But hey, maybe the Nifty Nasdaq will see the DSI top 90 in the next few days.
