Sentiment turning from peak waves a cautionary flag for equities markets

Sentiment indicators have recently been moving off the extreme levels we saw about a week ago. Can we interpret that as a positive, for the extension of the bear-market rally? Not really, based on looking at historical charts of sentiment indicators. First you'll see below the daily and weekly charts of the put/call ratio (CPCE). When you compare its levels against where equities markets have been over the same time frames, you'll see that equities haven't always peaked when the CPCE peaked. Sometimes a peak in equities occurred when the CPCE made an interim (higher) low and then moved up again. Chart position suggests this could be happening again. It's the same with the bullish percent charts (also below). The Bollinger Bands and moving averages, along with the "wave pattern" in CPCE's weekly chart, also suggest that a reversal can be in the offing.

You'll see (below) the bullish percent chart for the S&P 500 (BPSPX) and for the Nasdaq 100 (QQQQ's being the ETF for the Nasdaq 100) (BPNDX). Similarly, you'll see that these bullish percent charts really start "talking" when the percentage, and the indicators on these charts, start rolling over and moving down. Don't forget by the way, that the QQQQ's are flirting with their 200-day moving average at the same time. Okay, I won't say that these movements in sentiment indicators are guaranteeing that the equities markets are about to roll over immediately and drop to scary levels. Let's just say that the chart positions of these sentiment gauges are waving a cautionary flag.

When I posted the bullish percent charts a week ago, in preparation for the week of April 20-24, I stated: "At some point bullish percent will roll over and that will help signal or confirm that there's another move down in the markets. Didn't happen yet, but obviously getting very close." Well - when you look at the bullish percent charts below, you will see that the actual percent did move down, and the indicators started to roll over also. Sure, they will flick back up again if that's where the markets go, but on the long-term view these charts afford, my viewpoints is: "eeeek!"

I won't actually post yet another image of my VIX/VXO charts with this post, because I've been posting and talking about that also lately. While the volatility indices measure volatility and not pure sentiment, let's face it, they are pretty close. Given that the VIX plumbed what I really believe is a significant low, right as the CPCE marked one interim low and the bullish percent charts hit highs, I've got to think that these pullbacks are significant. And that the cautionary flag means we really cannot guarantee that an equities pullback doesn't become more bearish.

Could equities surprise and push up to even higher rally levels, along with these sentiment indicators reaching even more extreme highs? Sure, anything can happen! But over the time frames of these charts, we must respect the cautionary flags they are waving now.