Sentiment Doesn't Change Overnight

Note: I am still on vacation. My next column will be one week from today, June 30^th.

On Friday, I saw someone comment that while the last two weeks saw the S&P down, it had only lost one half of one percent, which he seemed to think was bullish. So, I looked back, and do you realize that one month ago, on May 19^th, the S&P closed at 5963? With Friday’s close of 5967, that would essentially render the S&P flat over the last month.

Do we need to wonder if that person thinks that is bullish? Well, it doesn’t matter what that individual thinks because, as I often note, sentiment takes time to shift. We rarely see folks move from bull to bear or bear to bull so swiftly. This time is no different. Sure, there will be those who cite the AAII survey, which last week saw the bulls scoot right back to bears, but for the first time in two months, this survey does not align with other indicators.

The Investors Intelligence bulls now have 41% bulls and 26% bears. It’s not a wide spread but it’s a far cry from the 23% bulls and 35% bears we saw at the lows. I could split hairs, but it is essentially the same spread, only reversed, isn’t it?

The NAAIM folks who took their market exposure down to 35 at the lows are now up to 94, the highest of the year, although they were just under 100 in December. It’s clear these folks have shifted camps.

We already know about the put/call ratios showing too much call buying. We don’t often look at the 30-day moving average of the put/call ratio, but you can see it has now turned up from similar levels it saw a year ago (July), and December, and February.

So, I would say yes, that gentleman is correct that the decline in the S&P since we got intermediate term overbought in late May is minimal, the sentiment shift though, is not.

And while the S&P has been milling around, the McClellan Summation Index has been rolling over. It now needs a net differential of -1100 advancers minus decliners on the NYSE to halt the decline. Note, too, that it made a lower high on this latest attempt at turning back up.

I have complained about the new highs lacking, but have also noted the new lows have not expanded. Now, both the NYSE and Nasdaq Hi-Lo Indicators are rolling over. So something is happening under the hood on that ‘only ½%’ pullback in the S&P.

We are not oversold on a short or an intermediate term basis. It is also true that, thus far, nothing has broken. Just witness how the IWM stopped right at 215, but can’t really seem to break under 210. If you are watching the Russell 2000 itself, that’s 2150 and 2100 approximately. I’ll go out on a limb and say that if the IWM, which I see so many now love, breaks this support area—because there is a support line as well as an uptrend line there—we will see those newly minted bulls scurry back to the fence and seriously consider jumping back to the bear camp. But as we have just witnessed, the shift in sentiment is not always immediate.