Once again, traders reach for speculative options: Starting in May, options traders showed a willingness to go all-out with speculative trades. After a brief respite, they returned in July and now in August, they have set new records. Compared to overall volume levels, we've never seen such zealous speculative activity.

Monster momentum versus poor participation: Stocks have managed a tremendous run in recent days, weeks, and months. That kind of activity tends to continue. But it's being met with a historic bout of poor participation, with relatively few stocks helping to push the indexes along their momentum streaks.

More oddities with VIX, breadth: As if we needed more of these. Beginning in earnest in late July, there have been stark divergences between implied volatility, underlying market breadth, and daily changes in the major indexes like S&P 500 and Nasdaq Composite. This is far from normal behavior, and yet it continues. For the Nasdaq, Monday was the 4th session in 10 days when it gained more than 0.5% and yet there were more declining than advancing stocks on that exchange. Only December 1999 exceeds this in 34 years of history. And Monday also marked the largest-ever gain for the VIX on a day the S&P 500 lost so little. Below we can see days when the VIX gained 10% or more.

Bottom Line:

• Weight of the evidence has been suggesting flat/lower stock prices short- to medium-term again; still suggesting higher prices long-term
• Indicators show high optimism, with Dumb Money Confidence above 80% with signs of reckless speculation during what appears to be an unhealthy market environment, historically a bad combination, though it's easing somewhat and so far the risky conditions have failed to lead to any weakness
• Active Studies show a heavy positive skew over the medium- to long-term; breadth thrusts, recoveries, and trend changes have an almost unblemished record at preceding higher prices over a 6-12 month time frame
• Signs of extremely skewed preference for tech stocks neared exhaustion by late June, especially relative to industrials and financials (here and here)
• Indicators and studies for other markets are showing less consistent forward results, though it's not a great sign for Treasuries that hedgers are net short and optimism on metals recently became extreme with concerning 100-day analogs, with "perfect" breadth among miners recently dipping a bit.