From the desk of Willie Delwiche.
Key takeaway: Optimism most likely peaked earlier this year, as options activity and equity exposure have continued to trend lower in recent months. Yet, our sentiment indicators show no signs of fear. Of course, it’s hard to imagine an environment plagued by fear when the S&P 500 and Nasdaq push to new highs. However, when we look beneath the surface new highs contract while new lows expand. It seems each day a new bearish divergence in breadth emerges, adding to the fragility and deterioration of an already shaky foundation. Without a supportive backdrop, a price correction or volatility event could lead to a meaningful unwind in sentiment.
The S&P 500 and the NASDAQ made new highs last week but looking beneath the surface tells a different story. There were as many stocks making new lows as new highs last week. Between the NYSE and NASDAQ, the new low list rose to its highest level since early May and the new high list dropped to its lowest level since October.