The market is overbought, and I expect a correction in early June.
Now, let me start my analysis by clearing one thing up. The narrative on Wall Street these days is: "Summer markets are slow" -- but did the folks who say that live through 2016, when Brexit brought us volatility last summer? And did these same folks live though 2015, when a mini-crash hit in August of that year? Or what about 2011, when the market fell apart in August. I have no idea where this notion of slow summers comes from, but the reality is different.
For example, look at the market's performance on Tuesday. Breadth was the worst we've seen in two weeks, while volume was negative for a third straight day. That isn't bullish. Nor is it bullish that the number of stocks making new lows expanded to the highest reading since that big down day two weeks ago. Of course, the S&P 500 was 3% lower back then, so I don't know how you can call Tuesday a good day in the market.
And there was also complacency Tuesday. The put/call ratio for ETFs sank under 100%. The last time it did that was two days prior to the May 17 plunge. In fact, look at this S&P 500 chart to see the previous times that we saw such low put/call ratios for ETFs:
It took three consecutive low readings in mid-March for this to matter, but it definitely mattered then, as the S&P 500 promptly corrected. And in late April, two consecutive days didn't see an immediate reaction -- it took two more weeks and two more single-day readings, but as you can see, down we went.
Statistics such as these tell me that we should get a correction ... and soon.
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(A longer version of this column appeared at 6 a.m. ET on May 31 on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other writers even earlier in the trading day.)