sentimenTrader Blog


2018-02-22 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Shades of ’87 (among others)

Over the past year, stocks have rallied, and the dollar has collapses as the Fed raises rates.

That is similar to 1987, but there were also other dates that didn’t lead to nearly such dramatic results. After similar setups, the best-performing asset was commodities.

50-day failure

After suffering a correction, the S&P 500 rallied back to its 50-day average.

It gyrated around its average but has not been able to close convincingly above it, and failed on Wednesday. Similar failures were a warning sign.

Lack of energy

The popular Energy Select SPDR fund, XLE, erased its week-long bounce and closed at a new multi-month low. The index that the fund is based on has had 18 similar failed bounces since 1990. Surprisingly, it wasn’t that bad of a sign.

Coffee grounded

The most hated commodity contract is now coffee, with an Optimism Index below 20. Coffee has tended to trend, however, especially to the downside, with years of prices dripping lower.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-21 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Buy the panic, or wait

Buying into a panic is hard, and much advice suggests waiting until the panic has subsided.

Looking at large spikes in the VIX “fear gauge”, we look at returns following the initial spike versus waiting. Buying into the panic resulted in better returns, more often, with a better risk/reward ratio.

Who’s buying?

Stocks rallied hard off the panic low, and the spread between Smart and Dumb Money actually got wider.

This is highly unusual and only happened one other time to this degree (November 2016). When the spread acts like this, long-term returns have been about double versus times when the spread collapses.

Wood is good

According to the Backtest Engine, the Optimism Index on lumber is how the highest since at least 1990. There have been only three other times approached this level, early January 1993, late August 1996, and late October 1996.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-20 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Correlations go back to normal

As stocks sold off, correlations between sectors rose as they usually do and are back at a normal level. That has reversed a period when correlations were almost at the lowest level in history, eclipsed only by the bubble in 2000.

When correlations rose from a low level, it led to medium-term positive returns, but some long-term trouble.

No thrust

During the 6-day rally off last week’s panic, there hasn’t been a buying thrust. The largest Up Volume Ratio was 83%, well below the usual threshold of 90% that would suggest eager buying.

It didn’t matter – future returns were about equal whether there was a thrust or not.

Quick change

Almost no S&P 500 stocks were above their 10-day averages last week, but now more than 80% are.

The latest Commitments of Traders report was released, covering positions through Tuesday

“Smart money” hedgers added aggressively to longs in 30-year Treasury futures, now holding more than 5% of the open interest.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-16 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Best recovery ever

After falling into a correction a week ago, the Dow Industrials index has rallied every day and added 5.6%. That ranks among its best-ever recoveries after falling more than 10% below its high for the first time in months.

Other good correction recoveries led to medium-term follow-through.

Bond carnage

Over the past two weeks, an average of almost 2 out of every 3 investment-grade bonds have declined each day. That’s among the worst stretches in 13 years, barely above the worst-ever reading.

Investors have taken note by yanking 8% of assets from LQD, its worst two-week decline in assets ever.

Factors following fear fall

Fear has been cut in half, which has not necessarily been a good sign for the broad stock indexes. Among factors, small-cap growth stocks fared best.

4 out of 5

The S&P 500 has jumped more than 1% on 4 out of 5 sessions following a 50-day low.

Volume surge

A 5-day average of the NYSE Up Volume Ratio has gone from an extremely oversold level (below 30%) to an extremely overbought one (above 70%) within two weeks. That has happened 28 times since 1962.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-15 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

What a difference a week makes

The S&P 500 has jumped more than 1% on 3 out of the past 4 sessions. That buying thrust comes on the heels of a multi-month low during a bullish long-term trend.

Future shorter-term returns were skewed positive, a stark contrast to similar thrusts during bearish trends.

Volatility x 1/2

The original VIX index has plunged by half in recent days, after spiking well above 30. That is usually taken as a sign that the worst is over and the storm has passed.

Similar spikes-and-plunges, however, led to weak returns in stocks and an increase in volatility.

No breaks for bonds

The popular investment-grade corporate bond fund, LQD, has been able to stitch together only 4 positive sessions over the past month.

Good news for miners

The HUI Gold Bugs index was at a 52-week low three days ago, and has since jumped more than 3% on two of the sessions since. That has happened 7 other times in the 23-year history of the index.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-13 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Six-month comparisons

Looking at analog comparisons of different time periods is fraught with data-mining risk, but they can still prove useful in some contexts. Looking at how stocks have traveled since August, there have been 26 six-month time periods since 1928 that have a high correlation to what we’ve seen over the past six months.

Over the following six months, most of those led to gains in stocks with only 1 loss of significance in six months.

A record shift in momentum

Heading into January, we looked at the market’s momentum via the Relative Strength Index several times, which almost invariably led to long-term gains. The S&P’s RSI has now cycled from overbought to oversold in the fewest days ever.

That raises concern that we’re now in a different market environment. That doesn’t necessarily mean losses ahead, as other quick cycles led to gains almost every time.

Someone got worried

The Equity Hedging Index rose above 70 during the past week, the highest level since February 2016. According to the Backtest Engine, when the model was above 70, the S&P showed a positive return over the next two months after 62 out of 70 weeks.

Blastoff

The S&P was sitting at a 50-day low in a bull market a couple of days ago then surged more than 1% on consecutive days.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-10 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Heavy selling in high-yield

Most of the measures we track for the high-yield bond market are getting stretched. This week, there was some of the most indiscriminate selling in over a decade.

Future returns have been very positive after similar pessimism, though bear markets are a different story.

Risk vs reward

Looking at every date in the most compelling studies this week, the risk vs reward is clearly skewed positive. The vast majority of dates showed a positive return over the medium- to long-term. The probability of a bear market was small, especially in the near-term.

Miscellaneous

Stocks do, indeed, bottom on Friday just as often as about any other day.

The volatility this week managed to trigger a CNBC special report and a Tweet from the president.

A big spread

The spread between Smart Money and Dumb Money confidence is now +40%, a rarely-seen level when the S&P is still above its 200-day average. According to the Backtest Engine, there have been 58 days when this occurred since 1999.

Consecutive selling

The S&P 500 sold off more than 3% on back-to-back weeks yet remains above its 52-week moving average.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-08 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Gaps galore

Heading into the peak in January, stock futures were gapping up almost every day. Now, they’ve gapped down at the open almost every day, tied for the most in history over an 8-day span.

Other tight clusters of gap down opens led to positive returns with one major exception.

Another streak gone

The S&P 500 ended its streak without a 1% daily change almost two weeks ago.

The streak was one of the longest in history, and now we’ve seen 5 moves of more than 1% since the streak ended. That’s the most ever, with only the 1960s seeing a few similar streaks ended with a sudden bout of high volatility.

Futilities

We’ve looked at the Utilities sector a few times over the past several months. In November, it looked like they might turn from utilities to “futilities” after a spike in 52-week highs and a negative reversal. It was another bad sign in December when they sunk down to the 200-day average for the first time in a while, and then again in January when they diverged so negatively from the Industrials…now it’s getting so bad it should be good.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-07 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Panic and reverse

Stocks suffered a panic day on Monday, then reversed early losses to close higher. That matches several other instances that led to consistent returns going forward.

There was volatile back-and-forth then another run at the prior highs.

Notable extremes

There was no shortage of extremes on Monday and many of them are redundant. Among the most notable, though, are that every member of the Nasdaq 100 declined but on Tuesday the index managed to reverse hard from a 30-day low. At the same time, more than 2 months of gains were wiped out in just a few sessions.

Heavy selling in high yield

The high-yield (junk) bond market has seen just has lopsided selling as equities. The advance/decline figures have been horrid, with an average of 743 more declining bonds than rising ones over the past three sessions.

Betting on a volatility drop

Our VIX Sentiment model soared above 5 on Tuesday, meaning that there was a whole lot of smart money traders betting that the jump was going to be short-lived. These traders are typically correct.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


2018-02-06 | Jason Goepfert | Comments

This is an abridged version of our Daily Report.

Crash

Monday’s trading – and post-close moves – are the types of action only seen a few times in history. Large, swift declines from a high have tended to lead to capitulatory moves that lead to rebounds in the medium-term. The possible liquidation of volatility products is a big wild card and will need to be watched closely. Based on other exceptional periods of momentum that we discussed in January, the current decline is about in line with the magnitude of declines that relieved pressure on buyers.

 

Pure fear

The “old” VIX that is priced based on S&P 100 instead of S&P 500 options saw its 2nd-largest jump in 32 years on Monday. Spikes of 50% or more have led to rallies in stocks over the next 1-6 months every time.

Big losses

The decline on Monday was not especially large, but in the context of just having been at an all-time high, they are dramatic. There have been a few times the S&P dropped 2% on consecutive days when being near a high, and about a dozen times when it dropped 6% within about a week of one. Those signals led to very positive risk/reward profiles over the medium-term, with the allowance of some short-term volatility, typically occurring almost immediately.

For access to the full report, indicators, charts, screens, and Backtest Engine, log in or sign up for a free 30-day trial today.


next page →


RSS Feed

Subscribe to the Blog RSS feed

Recent Blog Posts


As mentioned in...

Brought to you by:

Sundial Capital Research Logo