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Getting Giddy and Greedy

We haven't rolled over yet -- thanks to the action of the last three trading days -- but we're greedier, and getting close to giddy.

The Market

You can thank the pullback on Thursday and a re-rallying of the value stocks on Friday and Monday for keeping the indicators from rolling over.

In fact, the number of stocks making new highs have finally surpassed the prior peak. That is good news. The bad news? The New York Stock Exchange is still lagging on that score. We’ll call it mixed.

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The biggest change, however, comes from sentiment. It has gone from complacent to almost giddy. I say almost because we haven’t yet seen this week’s Investor’s Intelligence numbers, which are slated to come out Tuesday night. But I would be shocked if they are not in the upper 50s.

Let me just review the change in sentiment. The put/call ratio on Thursday’s decline was 116%. Folks got scared, they bought far too many puts relative to calls. Monday the ratio was 65%. To put that in perspective, the last time we saw a reading under 70% was in 2018, so it has been almost two years.

On the chart below, I have noted with a blue arrow the last three readings under 70%. It’s hard to say if we are at one of the first two or the last one, just before the January high. But I can say that in late January 2018, breadth was rolling over, the Russell was underperforming and the McClellan Summation Index was heading down. So this doesn’t look like late January 2018 to me.

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Many will probably note that after those first two readings, we saw a few days of churn before resuming the upside. That first one happened at a similar time of the year — heading into year end.

Here’s the big difference, though, the 10-day moving average of the put/call ratio was not as terribly low back then as it is now. Now it is just shy of 85%, the level it has turned up from – and the market has turned down from – for almost the last two years. The green circles on the chart indicate where the 10- day moving average was when those sub negative 70% readings arrived back in late 2017. That big low on the moving average near 76% was the last low reading.

What does all of this tell me? We’ve stepped beyond complacency and are bordering on giddy.

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CNN’s Fear and Greed is now at 86. It’s not a perfect indicator, and since I don’t keep it myself, it’s difficult to determine the exact levels. But the last time it was this high was the around the same time in 2017. So, it hasn’t been this “greedy” in two years.

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Finally, the Daily Sentiment Index is at 83 for the S&P 500, and 86 for Nasdaq. If these get over 90, it has rarely been a great buying opportunity over the ensuing weeks. This doesn’t mean we can’t keep rising, even if we get over 90, but the risk/reward becomes less, and you have to believe that the market will not correct. That’s a tall order for me.

Finally, the DSI for the Volatility Index is at 15. Only this time, unlike a week ago, it hasn’t made a new low in four days.

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So the indicators are mixed – still – but there has been some improvement in new highs. But sentiment is now bordering on giddy. My guess is we see another move up in the VIX before the week is out. Something to shake out weak hands.

New Ideas

I find myself drawn to the base that has been building in Kohls (KSS) - Get Free Report. This stock used to be a fan fave, and now no one even mentions it. If it can breakout, there is that gap to fill overhead.

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It’s been months since I first recommended CVS (CVS) - Get Free Report back in the mid-$50s. It finally filled that gap Monday. Earnings are out later this week and in an effort not to test the market gods, I’d say some profit taking is in order.

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Today’s Indicator

The 30-day moving average of the advance/decline line is now oversold; it’s simply the math and the way breadth was so weak in late September.

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Q&A/Reader’s Feedback

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

Nutrien (NTR) - Get Free Report is trying so hard not to break down under $48. It keeps threatening and then getting saved, so as long as it doesn’t break, it gets the benefit of the doubt. As far as where it can go on the upside, well that’s the issue. There is just resistance all the way up. If it can cross over that downtrend line around $50 it improves the chart immensely.

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Simon Property Group (SPG) - Get Free Report is trying to bottom. There is a lot — a lot — of resistance at $163. That comes from prior highs and the downtrend line. Therefore, clearing $163 changes the chart from a potential bottom to bottoming and better. There is still resistance all the way up after that (see that $168 area) but eating through the first layer is what is needed to even believe the process has started.

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I am still a fan of iShares Silver Trust (SLV) - Get Free Report, even though it popped and dropped after I wrote it up a few weeks ago. It continues to hold this uptrend line, and if it can ever get over this $17 area it should enjoy a nice run.

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