The August Doldrums Are Here

The market action was decidedly negative today, but volume ran extremely light. This is likely an indication that the August doldrums are here, when most traders take time off from the market and squeeze in a summer vacation.

There were less than 1 billion shares traded on the NYSE today, which is very light. But although volume was light, angst was high among investors. The volatility index (VIX) spiked +7.2%, the ARMS Index closed at 2.04, and the put/call ratio closed at 1.05. All of these are very elevated levels.

Today's session, in and of itself, does not mean much. It's the follow through that counts. The financials rolled over today, but any talk of a retest is premature until we see some follow-through to today's move. That said, I am in the camp that fears continued weakness in the financials.

As for the rest of the sentiment indicators I follow, most of them ticked higher on the complacency scale last week, which is another reason that the market bounce from the July lows might be due for another pullback. To wit:

• The bull/bear spread on AAII bounced back to +4, after 9 straight weeks of negative readings (i.e., more bears than bulls)
• Bulls on Market Vane bounced for a 4th straight week, to 43%
• As for the put/call ratios, they remain in neutral territory, looking at the 10-day averages of these indicators

So overall, sentiment has not moved to the bullish levels we saw in May, but this bounce has also not been as strong as the one that followed the March lows. As such, I am closely monitoring the technical action in the market and not waiting for the sentiment indicators to match their May highs.