Calm Before the...Calm

The market has suddenly been set adrift, seeking some kind of tailwind to resume the remarkable and perfectly timed rebound that began with the intraday session on February 11. While the last three weeks have seen a fair amount of pressure, the fact of the matter is that the S&P 500 rallied almost 13% from its low to finish the first quarter in many ways that has been impressive, too. Consolidation is the name of the game in the market, particularly where everyone expects volatility.

(Perception isn’t reality, but it has a great influence on it.)

Still, that angst you feel also reflects, in Wall Street’s thinking as well as the overall 52-week estimates for the S&P that have drifted lower as ‘sell’ ratings have begun to increase.

This angst also reflects in investor sentiment that has whipped around all year to huge bearish levels from time to time. Over the last year, however, sentiment has been largely ‘neutral,’ which isn’t indifference; in fact, it’s pure confusion. Remember, professional investors use individual investor sentiment as a contrarian indicator. Too much bullishness = bad things for the market and too much bearishness = good things (see Feb 12) for the market. However, too much neutrality is a coin-toss.

Breadth

I have harped on this a lot because the quality of leadership speaks to where the market goes from here. Blue chip names continue to be havens for equity investors, which underscores a desire to be in the market, but with more limited volatility and risk.

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There are not a lot of economic data or earnings reports that would significantly sway the market. Hence, this week might give us a purer peek into the soul of investors who are left on their own accord to buy, sell, or hold.