The Market
I wish I had something new and different to say about the market, but it is even more overbought now than it was a week ago and sentiment is even more giddy.
Today’s put/call ratio was 60%. We have not seen a reading at 60% since mid-December 2016. The market spent the next six to eight weeks going sideways. Prior to that, though there was a handful of readings in the 50s and that was August 2015 — before the market collapsed late that summer.
The 10-day moving average of the put/call ratio is now at 77%. The Jan. 23 low for the moving average was 76% so you know it’s frothy in options land as well.
Then there is the Daily Sentiment Index (DSI), which saw the S&P at 91 today. Nasdaq pushed up to 93. Again, nothing is perfect, but all of these are at extremes and rarely does the market continue to carry on upward without a down day. I would be shocked if the Investor’s Intelligence bulls are not over 55% this week, although over 60% is “too much,” over 55% is a yellow flag.
To show you how overbought the market is via one metric, it will now take a net differential of negative 6.4 billion shares (that’s up minus down volume) on Nasdaq to turn the Summation Index back down. That is just a smidgen more than was needed back in mid-April when we saw Nasdaq lose a quick 4% in a few days.
Even though breadth remains strong, the number of stocks making new highs is not expanding and, heck, Nasdaq made a new high Monday, yet not only are there no more new highs than there were in mid-May, there are a third the number we saw the last time Nasdaq was up here.
I still think we should correct. So far that call has been wrong. However unless/until breadth rolls over and there is deterioration underneath it’s not bearish.
New Ideas
I know stocks like Kraft Heinz (KHC:Nasdaq), which I liked last week, are not terribly exciting, but heck KHC is a stock with a 5% yield that is up 10% in a few days, so it may be boring, but it’s working. I thought of that because months ago someone asked me about Kellogg undefined and I was quite lukewarm; I like General Mills (GIS) much better). I find myself warming up to Kellogg. I think that $69-$70 resistance will be problematic in the near term but the stock has done a lot of work in the last few months to improve.
Today’s Indicator
The 30-day moving average of the advance/decline line is overbought. But it seems nothing like this matters these days. Until it does.
Q&A/Reader’s Feedback
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I struggle with a stock like Caterpillar (CAT) , because it is up against resistance yet at the same time the gap from Friday has held. The best I can come up with is that a pullback toward $130 would be buyable.
The iShares MSCI Emerging Markets fund (EEM) is into resistance but still has a bit of room to fill that gap at 43. It is not the sort of chart I can endorse because it is up so much already. It needs a pullback or a dip or some sideways action.
Freeport McMoRan (FCX) had a nice breakout over the downtrend line. The next target should be a gap fill around $11.75-$12.
Baidu (BIDU:Nasdaq) has resistance in the $120 area from that spike high in May however overall I like this chart. I just want to see it digest up here between $115-$120. A pattern such as it formed in the fall of last year after that spike high would be a nice set up.
