Taking the 493 Out to a Lonely Stretch of the Risk Curve
The others rallied, but at what expense? Plus, here's why bonds are due to rally, and how Monday led to something I'm not sure I've ever seen before.
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Last week I suggested that there was too much divergence chatter going on and if the 493 could rally we might silence it. I am pleased to say that is exactly what happened. But here's the rub. I thought it would get folks more bullish if the divergences fixed themselves. However, the 493 have rallied at the expense of most of the big-caps.
In other words, many of the big guys have sat it out the last few days so folks are not getting more bullish even though they are no longer worried over the divergences!
I suppose we can take the fact that they are willing to buy, or cover their shorts, in the 493/others means they are willing to go out further on the risk curve instead of concentrating so heavily in the big caps.
That having been said, breadth was terrific on Monday, with 80% of the volume on the upside on the NYSE. I am quite surprised that the Russell 2000 has rallied nearly 5% in a few days and the McClellan Summation Index has barely turned upward. One harsh down day with poor breadth and it will turn right back down. I'm not sure I have ever seen this before.
The number of stocks making new highs increased but they are still well below the peak readings in December. This is true for both the NYSE and Nasdaq.
Then there is the VIX, which was up quite a lot on Monday. Perhaps it was anticipation of the CPI report or the fact that the "Favored Few" have stalled out -- and keep in mind, they do control the indexes -- but that move in the VIX was noticeable. It also managed to get the Daily Sentiment Index (DSI) for the VIX, which had gotten to 10 late last week, to surge up to 15. And the reversal in the Nasdaq and the S&P took their DSI's back into the 70s.
What I'd really like to talk about, though, is the bonds. The CPI will be out on Tuesday morning, and it should be market moving, perhaps even moving for interest rates. I don't profess to know what number would get a reaction but I do know that I have been waiting for the iShares 20 Plus Year Treasury Bond ETF TLT to get into that $92-ish area and it hasn't.
I think bonds are getting very oversold and are due a rally. I'd prefer if TLT could come down into the $92 area and then reverse but either way, I'm back to thinking bonds rally this week.
One of the reasons I think we are due for a bond rally is because the Utes have quietly bounced off support. They have been leading the bonds recently.
