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Sizing Up Sentiment

Let’s look at some changes we’re tracking -- and why I expect May to become more volatile.

The Market

There is much to talk about in terms of sentiment, but first I want to point out that the indicators haven’t changed much. I use the word “much,” only because as you know, we are heading into an intermediate- and short-term overbought condition, so that will be a change for the indicators in the days and weeks ahead.

On the sentiment front, the American Association of Individual Investors finally saw a shift. It’s not a big shift, but the bulls scooted up six points, and it all seemingly came from the bear side, since the bears fell by six points. The four week-moving average of the bears hasn’t changed much but the bulls are back at 30%.

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Then there is the NAAIM (National Association of Active Investment Managers) Exposure Index. While it is still relatively low at 78%, understand that in the last week it has jumped by more than 30 points. Now that is a change in sentiment!

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Finally Wednesday’s equity put/call ratio was 53% which was the lowest since it was 51% on Feb. 20. Keep in mind we saw the 10-day moving average of this indicator significantly lower in February than it is now, but a week or so ago we discussed that if this saw readings hovering around 60% over the ensuing week, we could see the 10-day moving average down at a more normalized 60%. And now we have.

As you can see under 50% is extreme, as we saw in January, but under 60% is where we can say folks are no longer bearish.

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Finally there is the ISE Call/Put Ratio. We don’t look at this one very often, but we looked at it a few weeks ago because it was so low. Unlike the put/call ratio, this has not reversed much over the course of the month. However, this week it has started to surge. This too shows a change in sentiment for the first time. (Think of this as the inverse of the put/call ratio: Low readings are bullish and high ones are bearish.)

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So, it may not be extreme in terms of sentiment, but it is interesting that folks have finally turned decidedly to the bull camp just as we head into an intermediate-term overbought reading. It solidifies my view that May is likely to be much more volatile.

Speaking of volatility, the Volatility Index did move up this week. I don’t have a sense for if it spends a few days down here before it moves up again, but I don’t think the move up is quite done yet.

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New Ideas

Walgreens Boots Alliance (WBA) - Get Free Report is one retailer that has not rallied at all in this market, which is quite curious considering the retailer stayed open and was not forced to close. A break of that uptrend line and I think this can easily revisit the lows.

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Also, for the person who has asked about General Electric (GE) - Get Free Report I did not like it when it broke $7, but it broke and did not go very far. Now It ought to be OK, as long as it holds over that uptrend line (last week’s lows).

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Today’s Indicator

The put/call ratio is discussed with the chart above.

Q&A/Reader’s Feedback

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You will see a theme emerging, one that began with Wednesday night’s charts: There is a lot of overhead resistance and many charts look like the best they can do is chop sideways. And some are vulnerable to downside.

Wingstop (WING:Nasdaq) looks similar to some of the health care stocks -- it’s over extended. If it came back to $100 I’d have a look at it on the long side, otherwise it looks vulnerable to me.

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Walmart (WMT) - Get Free Report met its upside measured target when it got to $130 a few weeks ago. It’s debatable whether that’s an island up there (there is trading in the gap), so for now I would say it has support as it heads into the $115-$120 area, but it mostly looks like the ride is done for now. A rally to $128, if it comes, would be a good place to sell it.

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Mercado Libre (MELI:Nasdaq) is a tough chart. Why? Because it stopped under resistance and hasn’t been able to even achieve that high again. It’s possible it just chops sideways from here between $550-$650, but it doesn’t look promising to me. Under $550 and it starts to look like it could retest that $450 area (gap fill).

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It is amazing that Anheuser Busch (BUD) - Get Free Report has hardly rallied in this up move, because almost every other consumer food/beverage name has. If this can’t get over $50 by next week it looks like a candidate to come back down to at least $40.

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Why hasn’t Berkshire Hathaway (BRK.B:NYSE) been able to surpass that mid-April high? (there is a theme here). Now if it breaks under $183 it will look like it is preparing for a trip back near $165.

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