Thursday Was a Game Changer
Although breadth was good on Thursday, it was not as good as it could have been. Sentiment. however, is what we really need to discuss.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
When I said I thought if we were down early in the week we’d rally again later in the week this was not what I had in mind. I thought a rally, not an explosion to the upside. And the math says it can last until early next week although after six straight up-days, it’s hard to imagine it would be so explosive.
Breadth was good, but curiously, it wasn’t nearly as good as the two prior big up days we’ve had in the last week or so. Yet, cumulative breadth on the NYSE has made a higher high-well before the S&P has. That is new and different (and generally bullish).
But what I really want to discuss is sentiment. My sense is that Thursday was a game changer for many. So while the Investors Intelligence bulls we looked at yesterday (lower than the April reading and almost to the October reading) is market bullish, I would almost expect that, as fast as we saw it come down two weeks ago, we will see it rise next week.
The American Association of Individual Investors did not get terribly bullish this week, however, the bears ran away as they fell 8 points this week. That was before Thursday, so you can imagine how that will be in the days ahead.
Then, there is the National Association of Active Investment Managers. Last week I complained that they were still at 73 in their exposure and, sure the major indexes rallied, but as I noted yesterday, the Russell was flat in the past week. These folks reduced their exposure to 53 this week. That is quite a move.
We’ve already discussed the put/call ratio’s ten-day moving average (trying to turn down) so that sentiment is positive as well. While I expect Thursday’s rally changed some minds my guess is, based on these sentiment readings, folks will be lined up to buy the dip.
So, where does that leave the indicators? Well with upside volume at 85% of the total on Thursday, that would be a positive overall but the Volume Indicator is at 53% so it never got oversold, thus any upside seems limited there.
The SOX got to 5200—a lot faster than I thought it would. And while the S&P got through its 50-day moving average, Nasdaq remains below it. I still expect a market pullback next week though, especially now that so few are expecting it.
Finally, I want to visit the bonds. At the low in rates last week I said I thought that was enough for now. It appears this chart of the yield on the Ten-Year is working on a W pattern and while I don’t think rates are going to soar now, I can see them moving back toward that 4.10-4.20% area.
