Nasdaq and the Sentiment Cycle: Where Are We Right Now?
Here’s what our fresh update revealed. Also, the ‘smart money’ makes a key change, and why tech stocks could rally this week.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
I promised I would update the chart of the Nasdaq relative to the Sentiment Cycle this week and I have. I would make two observations, though: At some point all chart analogies diverge and rarely are they so exact, so we always need to use an awful lot of grains of sea salt when examining them.
Sentiment Cycle
A week or so ago I said I thought we were at “Overt Warning” (blue arrow). The question really is if that plunge last week took us into that little consolidation/short-term rally area that is unlabeled on the chart but sits just to the right of the words “Buy the Dip.” Or was it Panic?
Nasdaq and the Sentiment Cycle
Of course I don’t know for sure. I suspect that it is the consolidation area next to the words ‘Buy the dip.” Thus we should get a short-term rally.
I would gladly accept having my mind changed if we see a day where 90% of the volume is on the downside. I would gladly change my mind if the 10-day moving average of the put/call ratio surges upward in the coming days.
I would gladly change my mind if the 30-day moving average of the equity put/call ratio was significantly higher than it is now.
It is my view that the Either/Or Market has kept us from getting sentiment to that point where everything feels scary and panicky. There has always been somewhere to run and hide.
I also wonder if this type of action had arrived in May or July, would folks get more bearish? I think that seasonality factor looms large in people’s minds. If the type of action we’ve seen occurred in May we’d see all sorts of articles and calls for “Sell in May and go away.” But now we are filled with “year-end rally” commentary.
That having been said I still think we are due for an oversold rally in the tech stocks this coming week. I laid out the reasoning in my last column so I will simple note the QQQs had over 100 million shares traded, the one-day reading for the put/call ratio pushed up over 1.0 and the Nasdaq is getting short-term oversold.
On Friday we had a new piece of data in the way of the put/call ratio for the VIX as it chimed in at 1.58. That’s high. Recall that I think the VIX options traders are smart money. For months they have been betting on a higher VIX (readings sub 0.20), and last week they got it. Last week the call buyers in the VIX were rewarded.
With Friday’s reading surging as it has (well over 1.0) it means these pros are now, for the first time, betting on a lower VIX. That is a positive change. If only we could see a drastic change in sentiment across the board…
