Our Sentiment Table

May 24, 2017, 10:13 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

One of our key indicators, the Sentiment Table, is on the verge of offering an overbought indicator that would suggest that the market will likely stall and turn down.

Historically, the Sentiment Table has been an exceptional indicator of near-term overbought and oversold market conditions but interestingly it has not offered an alert all year.

This is not completely abnormal, because the alerts that are offered by the Sentiment Table do not happen regularly.  The strategy we have coupled with this Sentiment Table, appropriately called the Sentiment Table strategy, spends about 68% of its time in cash every year. 

Therefore, having no alerts from the Sentiment Table for months on end is not unusual, but the recent span of approximately six months without an alert is longer than we have ever experienced.

Currently, our Sentiment Table is showing 90 in the near term strong column and if it gets to 100 it will officially offer an overbought market indicator.  You can view the Sentiment Table on our website.

This is interestingly happening while some very prominent names are breaking their longer term support levels.  Dow Chemical, DuPont, IBM, and TJX are all flirting with breaks of longer term support at a time when the market itself could soon offer an overbought indicator.  This also is unusual, because they are constituents to the Sentiment Table's focus list.

Notwithstanding this immediate oddity, something more prominent explains why the Sentiment Table has not fired an alert all year so far.  The rationale is the lack of volatility in the market this year.  The VIX, which can be used to gauge market fear, fell by about 30% over the past 5 trading days, and aside from a few short-lived spikes, the VIX has been low all year.

The Sentiment Table, and appropriately the Sentiment Table strategy, embraces volatility and uses volatility  as a mechanism to make money trading the market, but when there's no volatility there's no alerts, and this year there has been virtually no volatility. 

That at least has been true until, maybe, now.  Our Sentiment Table is very close to offering an overbought indicator, the first one all year, and this is happening just before the end of May and the Memorial Day holiday, which marks the beginning of summer, a time when the market is more prone to volatility.  This would be a welcome sign for our Sentiment Table and Sentiment Table Strategy.

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