The Longer the Divergence, the Less People Seem to Care
Sentiment shows that investors are bullish... but for just a handful of stocks.
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I know it doesn’t feel like it but the small caps actually outperformed on Monday. I also know it doesn’t feel it but upside volume for Nasdaq (as a percentage of total volume) was the highest in nearly a month (June 12th).
That’s the good news. In other words, not much else changed. Except that folks got even more bullish in the options arena. The total put/call ratio fell to .79. It had a similar reading in mid-June. The market was down for a day or so and then continued its grind upward for the S&P and a big nothingness for the others.
Even the ISE’s equity call/put ratio saw the bullishness erupt. The reading was the highest it has been (2.52) since the final days of 2020. Oh, there was one outrageous reading in March of 2022 (the market plunged thereafter) that I am opting to discount because it was so off the charts.
But for those who think folks are not bullish, I’m just not sure where you see that statistically because I am hard-pressed to find a sentiment indicator that is not showing bullishness. Even the American Association of Individual Investors (AAII): while their bullishness only notched up slightly last week, their exposure to equities is now over 70%, which is historically high.
It seems the longer the divergences go on, the less folks are concerned about them. The more they figure, it doesn’t matter.
In any event, I know I said I thought we’d rally in early July, and we have; Nasdaq and the S&P haven’t had a down day in the month yet. But I thought the others would rally and so far they have languished with a few pockets of strength that don’t seem to last longer than a day or so.
It’s not often you see the major indexes at new highs and the number of stocks making new highs not only fail to get to the prior peak reading but continue to contract week over week. It would be quite helpful if the new highs would expand. That would help my case that the others should find some love.
I want to visit the bonds/interest rates. It has been my view that we were likely in a trading range, with no discernable big move ahead of us. However, the yield on the Five Year has made a tiny marginal lower low (than mid June) in the last few days so it caught my eye. There is a very solid uptrend line, dating back to the August 2022 that comes in right around this 4.20% area. If that breaks it would obviously mean lower rates but more than that, it changes the trend which has been in place for two years now.
If it does break, it should mean the Utes, which I have warmed up to again recently are in fact trying to bottom again.
