Even Emotional Swings Can't Pry the S&P 500 Off the Range

For the last three months the S&P 500 has been in a relatively tight range. I’ll call it 5800-6100. If you were trading a stock that went between $58 and $61 for three months you’d probably move on because it would bore you to death.

Yet in those three months and within the confines of this range we’ve seen bullishness soar (in late November) and we’ve seen bearishness soar (in mid-January). And neither of those two emotional swings has led us to more than this ping-pong match.

While the range is wider in the semiconductor space (SOX) it’s a similar story since the fall. At 4800 folks get antsy and upset and maybe a little bit scared. At 5400 it’s AI forever and to the moon. And yet, we remain home on the range.

I had real high hopes for the mid-January oversold condition. It had been more than a year since we were that oversold and sentiment was so bearish. And thus far all we’ve been able to muster is a move in the S&P right back to the high of the range. Perhaps Thursday will change that since the index movers should rally again (every other day they rally this week) but in the past when we have had that sort of setup we would typically get a rally that was relentless, one that didn’t let you in, one that dragged — or heck — was led by the small-caps. Now we get chop.

And so far that is what the short-term overbought condition has been serving up this week: chop. In my view, this is what it is supposed to do but we’re still in an either/or market. When the index movers rally it leaves no room for the others and when they back off it leaves room for the others. Thus what was up Monday is down on Tuesday, then tries again to rally Wednesday, etc.

In the meantime, sentiment, using the Investors Intelligence, saw the bulls up a mere two points again this week so they now sit at 47.5%. I fully expected to see them over 50% by this week. I guess they too see the range. Maybe next week.

But it is the put/call ratios that continue to sink. Yesterday we looked at the 10-day moving average of the total put/call ratio. Today let’s take a gander at the 10-day moving average of the index put/call ratio. That is the lowest reading since July of 2019. So it is even lower than it was in November 2021. No one is even hedging with puts because clearly they believe the index can’t go down.

The short-term overbought condition is working off and the intermediate term has not yet gotten to an overbought condition. Even the bonds are barely moving this week and we had an FOMC meeting!