Recent firm morning note

Almost like a broken record for the last two weeks we have proposed the idea that the market would keep working higher because investor sentiment was more cautious or doubting than embracing suggestive that many investors still had not deployed a lot of capital.

Over the last several trading sessions this thesis has played out. However what is even more encouraging now is this rally has started to broaden out more. Originally it was predominantly tech and commodity based names leading the charge however in the last few sessions the banks and the cyclicals are starting to catch a bid again as are the transports.

Internals on yesterday's advance once again had a bullish tone with up to down volume on the NASDAQ scoring a ratio of 5.2 to 1, with nearly 2.5 stocks advancing for every one that declined. Over on the NYSE the internals were even stronger with up volume besting down volume by a ratio of 8.69 to 1 with 4.75 stocks advancing to every one that declined.

As the rally has accelerated more aggressively of late the total equity/index put call ratio has slipped suggesting more calls are being purchased than puts. This is not an overly bullish backdrop, however it is a shorter-term indicator as opposed to a more secular indicator. Additionally AAII Bull Sentiment also rose recently to a reading of 47 % last week. While neither of these numbers are alarming just yet as they continue to rise so does the probability of a pullback.

However the overwhelmingly positive market breadth figures and bullish sideline liquidity trump sentiment for the time being and pullbacks remain buying opportunities until sideline cash dries up.

Today we will get another look at AAII Bull Sentiment figures and are expecting a bit of a spike. With the summer vacation schedule picking up steam the market could pause here a bit as for Portfolio managers, the largest net buyers of equities take a temporary siesta.




posted by Peter Greene