Interestingly, the stock market fell very slightly on Thursday. But that has no impact on the extremely speculative run the market has been on for the past few weeks. It was very exciting to finally get the NAAIM exposure index because we knew it would get above 90 which is a strong sell signal. Most of the time this index is useless. 

It’s only useful when the market is extremely oversold like in March or extremely overbought like it is now. The index rose from 81.65 to 91.6 which was the highest reading since January 22. At important market peeks, this reading gets to the low to mid 90s. We are within that range. There’s likely little more upside before a decent correction.

Because this has been the best 50-day run ever, it wouldn’t be surprising if the correction is violent as people take profits. Don’t buy stocks in the next few days because you fear missing out. You will get better prices within the next couple weeks. Amazingly, the stock market completely ignored the study that showed hydroxychloroquine doesn’t help treat COVID-19. Nothing matters except momentum for now.

There are so many extreme sentiment readings. Let's review them all now. 67.6% of S&P 500 stocks are at 20-day highs. That leads to a 2.3% decline on average in the next month and a 14.6% rally in the next year. We will likely see a bigger decline in the next month and a smaller rally in the next year. 

VIX has declined 62% in the past 10 weeks which is the largest 10-week decline ever. Put to call ratio is the 29^th most overbought in 20 years. As you can see from the chart below, in the past two years when stocks are this overbought based on the 5-day put to call ratio, they usually pullback. Both the 10-day and 21-day put to call ratios are near their February levels.

This is one of the steepest slopes the Nasdaq 50 day moving average has ever had. As of June 3, 97.8% of large cap growth stocks were above their 50-day moving averages. 100% of industries are above their 50 day moving averages which shows us this rally isn’t only in tech and healthcare. In the past couple of weeks, it has expanded to the industrials and other cyclicals. 

As you can see from the top chart below, the Nasdaq had its highest volume ever on Thursday which is surprising because usually volume peaks when there is volatility. Call option volume looks to have hit the highest level since 2010 and the daily high tick reached a record high. CNN fear and greed index rose 1 point to 62 which is greed. That’s even though this was a down day.

Even though there are riots and the labor market is in disarray, the stock market is on a tear. We had a rare down day on Thursday, but it was nothing. S&P 500 fell 0.34%, the Nasdaq fell 0.69%, and the Russell 2000 was flat. This market is so optimistic that we saw gun stocks rally on the protests and the retailers that have been hurt by the protests rally as well. 

We’ve seen the stocks that are hurt by COVID-19 rally along with the stocks that were helped by this new normal. Cloud stocks haven’t declined even as the airlines have exploded higher. It’s almost as if nothing can fall.

Spirit Airlines stock was up 21.43% on Thursday as retail traders did amazingly. This stock is up 162% since May 15. The momentum tech stocks finally fell as the CLOU cloud ETF was down 2.97%. That’s off its record high. Since May 15, it’s up 6.19%. It has climbed while investors rotated into the airlines. 

Biggest winner was American Airlines Group which rose 41% which was its biggest daily increase ever. It’s up 85% since May 15^th. It wasn’t much of a down day for equities. You know there is euphoria when even a down day seems like an up day.

Three sectors were up and the rest were down. three up ones were materials, industrials, and financials which rose 0.35%, 1.05%, and 1.97%. Worst two sectors were utilities and real estate which fell 1.95% and 1.81%.

Slack Earnings

There could be a new trend in software stocks based on the recent post earnings action in Smartsheet and Slack Technologies. Smartsheet stock fell 23% on Thursday because it gave light guidance. It expects 2021 revenues of $360 to $370 million which missed estimates for $371.5 million. T

hat sounds like a small miss, but when a company has a hot stock and is losing money, a small revenue miss is everything. Stock trades on sales growth alone because it doesn’t make money. The firm expects a Q2 non-GAAP loss of 16 to 18 cents. That missed estimates for a loss of 14 cents.

Slack reported a Q1 non-GAAP loss of 2 cents and a GAAP loss of 13 cents. If Slack can’t be profitable now, when will it ever be profitable? This is the best case scenario for the company. It had revenues of $201.7 million which was 49.6% growth. The stock sold off about 15% after hours which is a big deal because it was already down 5% on the day. It’s interesting that this stock suffered a similar fate to Smartsheet because its guidance beat estimates. 

Q2 revenues are expected to be from $206 to $209 million which beat estimates for $199.9 million. EPS is expected to be a loss of 4 to 3 cents. That was above estimates for a loss of 6 cents. If a stock has high momentum, but the company loses money, there’s always the possibility of a big decline. If Slack stays down, this might signal the cloud trade is near its end because these weren’t bad numbers.