For the last few weeks I have been running a poll on Twitter asking which way the next 100 points for the S&P will be.
A few weeks ago I reported to you that the poll was quite skewed at 60% down and 30% up. It eased up a bit by last weekend when we were at a more normalized 51-49.
This week, however, folks are starting to get a bit more bullish as we have 55-45. Quite frankly, I was shocked at the 30-60 vote, because votes are usually not so skewed, so I take the 55-45 as pretty close to folks finally taking the “over.”
We remain overbought. Sentiment is quite enthusiastic. It’s not just the plunging put/call ratios – Friday’s total put/call ratio was the lowest since the mid January high. It’s not even the Citi Panic/Euphoria Model or even the poll. Now we can put the Nasdaq Daily Sentiment Indicator (DSI) into the mix with a reading of 90.
We have seen it get higher, but as we know from past experience a reading over 90 (and a reading under 10) is an extreme. The S&P has a little more room in that it is at 87. And the Volatility Index is at 12, so there is some wiggle room there as well.
But please recall a few weeks ago when the DSI on Gold got to 90. Gold (GLD) - Get Free Report didn’t go down immediately. It might have even rallied a bit more. Same with silver (SLV) - Get Free Report. Gold hit a reading of 91 in mid May (arrow on the chart) and milled around up there for a few days, before backing off and rallying again. I am still of the mind that GLD will need to go sideways for a while or come down and tag that line before I like it again. It’s probably getting a little oversold this week, but it’s still just part of the range it has been in for nearly two months.
Silver (SLV) - Get Free Report hit its first reading over 90 at the arrow in late May. It had one more day and then it fell, too. Here, still, I think it will eventually make its way toward that lower line near $14.50. It probably bounces off the upper line of $15.50 and then comes down again.
But my point is these readings over 90 don’t come along on a regular basis and might not be instant gratification, but they should not be ignored.
Yet despite all the stretched indicators (overbought and overloved) breadth is still quite good, which means the market is not bearish, but we should see a correction. So far that correction call has been wrong.
I have been waiting for Schlumberger (SLB) - Get Free Report to fill this gap for six weeks and it came pretty close on Friday before reversing. I’ll call it close enough for now. I think SLB is likely to come back down to that $18-$20 area before I find it interesting again.
Wells Fargo (WFC) - Get Free Report was almost textbook the way it crossed that blue downtrend line then retested the line and rallied to resistance (black line). I would wait until we see it back in the $28-$30 area before getting interested again.
Friday’s great breadth day saw no improvement in stocks making new highs.
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I am still a fan of Gilead (GILD:Nasdaq), although when asked for an upside target I am not ready to calculate one, because it is too soon to see what it might be. There is resistance all the way up now, but as long as it stays over that $74 area it should continue to improve.
The question is if Microsoft (MSFT:Nasdaq) can rally up and through this resistance. It can. I would feel a lot better if the DSI for Nasdaq wasn’t 90, though. In this case I would wait for it to prove itself. One reason is that this is similar to iShares Nasdaq Biotechnology fund (IBB:Nasdaq) when it broke out and then failed.
Cyber-Ark (CYBR:Nasdaq) had quite the tumble post earnings and has rebounded enough to fill the gap. I would think it ought to try and tag that uptrend line around $100.
Amgen (AMGN:Nasdaq) has had a nice correction and as long as it holds over this $220 area, it ought to start scooping under and improving again. Haven’t these big biotech stocks (and drugs, too), which were so loved in April began to be left for the next shiny new thing? Why? Because they have corrected!