Confidence Drops The Market By Jonathan Levinson Click here to email Jonathan
Today's sudden drop at 9:45AM was attributed to the University of Michigan Consumer Confidence reading of 87.2 for May vs. 92.1 for April. Evidently the market was hoping for consumers to be more resilient, presumably to run out and borrow against the Fed's anticipated rate cut at its June 24-25th meeting. It seems like a deep thought for the Teflon Market to have, but indeed, if consumers are losing confidence, then the Fed may well find itself pushing on a string with its next cut.
Market breadth was distinctly bearish today, with decliners just about doubling advancers and declining volume more than tripling advancing volume for both the NYSE and the Nasdaq.
Also noteworthy today was the low put to call ratio throughout the session, which opened in full-on "buy the dip" mode at .46 and crept up into the mid .70s for the remainder of the session, never touching .80. The lack of bearish put volume showed, for the first time in weeks, a solid confidence in the firmness of the uptrend. This is exactly what bears are waiting for, because it implies that the bulls are already committed and confident, and that there will be fewer "weak hand" shorts seeking to cover on the dips.
If this interpretation is correct, we should see weaker support than previously encountered during the rally.
While the price uptrends are well-established and far from failing, risk for the bulls remains relatively high, given the toppy levels depicted by the bullish percent indices. By the same token, bears need to be patient and wait for a downturn in those bullish percents, and for the price supports to fail decisively to avoid "catching a falling knife" in reverse.
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