Market Internals: Stocks moved mostly higher last week. The trading was shortened due to the Easter holiday. So over the course of four trading sessions, the Dow Jones Industrial Average ($INDU rose three times, fell once, and moved roughly 115 points higher. Market internals were positive throughout the week. The exception was on Thursday, when the Dow plunged 145 points and up volume trailed down volume more than two-to-one on the New York Stock Exchange [NYSE]. However, that was the exception and by Friday, up volume overwhelmed down volume five-to-one on the NYSE and the ratio of advancing issues to declining issues was more than three-to-one positive. In addition, volume increased as stocks moved higher. Therefore, traders looking for a technical improvement in the market action finally got it last week.
The Nasdaq Composite Index ($COMPQ) rose during all four trading sessions and jumped 67 points, or almost 5%, higher in the latest week of trading. Semiconductor, software, and Internet stocks all surged higher. Market internals were positive throughout the week. In fact, on Friday, up volume exceeded down volume more than four-to-one on the Nasdaq Stock Market, and advancing issues outpaced declining issues by a two-to-one margin. At the same time, overall trading volume increased during each of the past four trading sessions and the technical action of Nasdaq stocks has now clearly improved.
Sentiment Data: While market internals have been improving, stocks are approaching an important test. Specifically, the broadest measure of the market—the S&P 500 Index ($SPX—is approaching last month’s highs. On March 21, SPX hit 895 before turning lower. Now, exactly one month later (because Monday is April 21), the S&P 500 is at 893.60. Therefore, it is very close to its March 21 peak and stocks therefore face an important test early next week.
The sentiment data is also similar to the readings from one month ago when it was noted here on March 21, “investors were quick to turn bullish during the market’s latest turnaround and there seems to be a greater fear of missing the next rally, rather than concern about another move lower. That is not the type of psychology one might expect to see given the long-term trend in the stock market.” Now, once again, investors appear to be turning bullish in anticipation of another move higher in the stock market. The net result has been market-topping readings from some of the short-term sentiment indicators followed here.
For instance, the key CBOE put-to-call ratio and the index put-to-call ratio have both fallen to low levels recently. On Friday, the CBOE put-to-call ratio, which gives “buy” signals when it rises above 1.00 and “sell” signals when it drops below .5, gave a dangerous .52 reading on Friday. That was the lowest reading from this indicator since August 16, 2002. Meanwhile, the index put-to-call ratio, which gives “buy” signals when it rises above 2.00 and “sell” signals when it falls below 1.00, produced an extremely bearish reading of .80 on Wednesday. In addition, the index put-to-call ratio has been producing a series of low readings during the past two weeks, which is a sign of high levels of bullish sentiment among index options traders. (For more on the recent low readings from this indicator, please visit the article, Index Intelligence: Index Put-to-Call Ratio Urges Caution, April 14, 2003, by Frederic Ruffy, Optionetics.com). In sum, while the readings from the key put-to-call ratios may have been distorted by last week’s option expiration, their extremely low levels are noteworthy and consistent with past market-topping conditions.
A number of other indicators are pointing to relatively high levels of bullish sentiment, which from a contrary perspective, are a reason to be cautious. The CBOE Volatility Index ($SPX), for example, fell to ten-month lows on Thursday. The market’s so-called “fear gauge” is now under 25%. Meanwhile, surveys of newsletter writers are showing relatively high levels of bullish sentiment. According to Investor’s Intelligence, bullish sentiment is now 50.6%, compared to 51.1% the week before. Bears fell to 30.3% from 31.1%. Meanwhile, the American Association of Individual Investors reports a surge in bullish sentiment (from 39.5% to 46.3%) and a modest increase in bearish sentiment (31.5% from 30.8%). Therefore, taken together, the sentiment data is pointing almost uniformly to high levels of bullish sentiment: so, despite the recent improvement in the market’s internal strength, it is once again an environment where option strategists want to trade cautiously and keep upside bets hedge.
optionetics.com
Semis are the second most volatile and perform well in the latest week. Breaking out of a coil formation and now testing resistance at March highs near 340.
Next time you try to line up table data here instead of using the fixed font feature try using these html tags:
<-pre->The table data as you want to see it followed by</-pre-> Leave out the hyphens.
Of course the write up above has the obvious error concerning Wednesday being Thursday etc. Still another source I respect warning about a market top despite that error.
I hope that will help.
RtS |
