Heading to Overbought and a Side of Speculation
Lots of highs in the market, but volume is lacking, indicating that speculation is running amok.
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Does the flat day in the major averages count as a ‘down’ day these days? I don’t know, but I do know we’re still on track to be overbought by the end of the week.
Breadth improved on Monday but not enough to make a new high. And the number of stocks making new highs came awfully close to last Wednesday’s reading but not quite. This is the chart of the NYSE but Nasdaq was similar.
But let’s face it, when the Russell 2000 tacks on nearly 1.5% on the day and breadth on the NYSE is +350 yet upside volume is 60% you know we’re back to the meme stocks and speculation has run amok.
An increase in upside volume is good, but when it is not accompanied by an abundance of stocks being up on the day, it tells me folks are back to the old games. Look at Gamestop GME, and while volume is not yet over 50 million shares, squint and you can see the pick up as it started rising today. It happens every single time as it starts slowly, and then volume explodes just as the move is over.
There were others, too, but mostly we’re seeing the wild speculation in Bitcoin. Surely someone will tell me there is a terrific use case for BTC but mostly it seems to me this is pure speculation. I don’t know where or when it will end but I can report that the Daily Sentiment Index (DSI) for it sits at 83. So it’s on the verge of getting overcooked but not quite there using this metric.
So, on the sentiment side, we have much to watch as we get overbought toward the end of the week. We’ve got the DSI for BTC (83). We’ve got the DSI for the VIX (10). We’ve got the DSI for the S&P and Nasdaq, which haven’t budged in days from their low 80s readings.
We even have the DSI for the US Dollar, which tagged 80 on Monday. Thus far, the only extreme reading is the VIX, all the others are simply knocking on the door.
The put/call ratio slipped to .75 which is the lowest reading since late August. This is another reason we know folks are on the road to giddy. The options ratios, the DSI and the meme stocks. Let’s see if we can get to the end of the road.
But none of that is what I’d call weird. It’s expected in such an environment. What is not expected is that oil fell more than three percent on the day, and the energy stocks were all up. Does that make sense?
And if you want to know if the DSI on oil is getting too bearish, the answer is no. It is a very neutral 61.
So that’s where we stand. A market that is heading to overbought, is knocking on the door of giddy (but not there yet), and has some decent speculation cranking up.
