Traders Are Complacent, But Is the Market Headed to ‘Anxiety’?
The market continues to follow the sentiment cycle chart, and it appears that we’re currently at ‘anxiety’.
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The Market
Will the news of a peace deal matter? I don’t know, since we’ve been at war for the last eight weeks and it hasn’t mattered. What I do know is just before I took a few days off, I indicated that the Russell 2000 was due to get short-term oversold around Memorial Day.
Of course, it jumped the gun and rallied the very next day, but that doesn’t negate the fact that the setup was there. It is still there. So maybe we will see the Either/Or Market at work and those stocks that did care about high gas prices and high interest rates—the ones that peaked in mid April—get their turn to rally now.
In last week’s rally, I saw that once the pressure came off the bonds, the others were allowed to rally. And yes, that meant NVDA had to come down. But I also noted the Transports refused to go down anymore, and the Utes had finally found a floor (I still like the Utes).
Thus far, the three-day rally has not been able to halt the decline in the McClellan Summation Index, which surprises me. That’s a big test this week: can this turn back up?
Aside from that, not much else changed in the charts. Sentiment remains complacent, and perhaps this peace deal will bring us a push to giddy. For example, Friday brought the DSI for the VIX to 18, but the DSI for the S&P and Nasdaq are still at a relatively neutral 76. If we can push the stock index’s DSI into that mid 80s area, I’d say we’ve gone to giddy for this indicator.
The put/call ratios are already there. There are a few other sentiment indicators that are there (Market Vane, Citi Panic/Euphoria). They don’t all need to get there, but I suspect a few more will, especially with the news.
I have been an advocate for the IGV for several weeks now. I also believe the individual stocks will start to diverge (they have). But my initial target on this rally has been that gap fill area around 97-98. I will widen it to 97-100 just because I think markets tend to like round numbers (and there is that 90/100 rule that applies—90% of the stocks that make it to 90 will make it to 100). But this weekend, as I was staring at the chart, I noticed it is STILL following the pattern of the sentiment cycle. At some point, I expect it to diverge, but for the time being, it makes me wonder if we are into that ‘anxiety’ period.
New Ideas
Long-time readers will recall how I harped away at the bearish pattern in Paychex (PAYX) for most of last year. But now, for the first time, we see a small, rounded bottom taking shape. I would love to see this get itself up and over 100 for a breakout.
For the people who keep asking about Abbott Labs (ABT), it finally lifted! I thought it could make it to the line, but it hasn’t done so yet. I suspect it does so. If it can get up and over that line, I would consider that a positive change.
Today’s Indicator
The new highs are still pretty pathetic, but at least the new lows contracted late last week.
Q&A/Reader’s Feedback
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The question is if there is any hope for Nike (NKE). I have joked that the best thing that can happen to the stock is it gets kicked out of the Dow, but let’s look at the chart itself. It is possible it is finally getting sold out. It’s trying to rally. Let’s start with a move to 47-48. I would be willing to bottom fish in this if you have patience.
I was asked if there were any homebuilders I would buy. I don’t love the charts in them, but Pulte (PHM) did fill that gap from last summer. I would call it a trade for now, with a stop too far away under last week’s low.
Becton Dickinson (BDX) has a similar look to the Transports! It is into quite a bit of support, so this is a decent place to nibble at some. I’m just not sure it can get through that 155-160 area without doing more work.
