Mixed signals

Market pulled back early in the week which wasn't too surprising as I had noted the bear capitulation on Friday but the market did manage to recover partially by the week's end. Market has essentially gone sideways the past couple of weeks. So now what? Is this a consolidation or a top? It's a tough call because there's mixed signals. AAII sentiment once again showed bears outnumbering bulls 2:1. You usually see such readings near market lows. The funny thing about AAII sentiment is that it's been more bearish these past few weeks than it was near the March lows. You got NAIIM sentiment backing off from 78% long a couple weeks ago to 58% as of Thursday. The VIX is above 30, fund flows are still negative and my anecdotal measure of sentiment still indicating a decidedly lack of trust in this rally. All of this to me is not indicative of a top. But on the other hand, put/call ratios are starting to signal complacency and the speculative action in some of  the tech stocks du jour is not healthy which also indicates greed/complacency by retail trader types.  City Group's panic/euphoria model is in euphoria territory as well. This indicator has been money as of late and is not worth betting against. So, what I think could happen here is we get a false breakdown whereby it looks like the market is heading towards the lows but it won't get there. The reason being is that there's still too much underlying pessimism and although here was notable bear capitulation on Friday, they haven't changed their stripes. They are still miserable, bitter, SOBs who are itching to get short again. Any trader types who on Friday were saying " can't fight the fed" have quickly tucked tail and got shaken out by Wednesday morning no doubt. If you're going to play the long side with such weak conviction, you will lose. Better not to play at all.

The bottom line is that we're in a tricky spot here as I see conflicting signals at a time when the market is going sideways. I'm looking for the market to throw the bears a bone here before ultimately going back higher but this is not a high conviction call.