sentimenTrader Blog


2018-09-21 | Jason Goepfert

This is an abridged version of our Daily Report.

Dow theory buy signal

Both the Dow Industrials and Transports have reached new highs. This is the first new high in the Industrials in months, following the previous breakout from Transports. Similar buy signals according to trend-following theory led to mediocre performance that was below any-time returns.

Another struggling sector

Homebuilders have not followed the market higher, with several of the stocks near 52-week lows.

When these stocks lagged in the past as the S&P broke out to new highs, the S&P did fine going forward during the next several months, but several of them ultimately led to trouble.

Don’t see this every day

The Dow jumped more than 0.75% to a 52-week high, and yet there were more securities trading down to a 52-week low than rising to a 52-week high on Thursday.

99 problems but the Dow ain’t one

The Dow has closed at a multi-year high in September on 99 days since 1929. It averaged a return of 0.2% during the next month, with 56% of them positive, and -1.1% risk versus 1.6% reward.


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2018-09-20 | Jason Goepfert

This is an abridged version of our Daily Report.

Dollar dips despite rate rise

The yield on Treasuries has jumped, but it’s not resulting in a perkier dollar, even though the two usually move in broadly the same direction.

The two markets do sometimes decouple, and that has usually led to more dollar weakness when it doesn’t respond to higher rates.

Options traders are nervous despite the calm

Options traders are pricing in a higher than average probability of a black swan event. This is despite a nearly 60-day streak without a 1% up or down move in stocks, raising concerns that somebody knows something. But it’s likely being distorted by the looming midterm elections.

Bad bonds

Optimism on Treasury bonds has declined to one of the lowest levels in 15 years. The Optimism Index for bonds just fell to 25 for the first time since March 2017. Only mid-May 2004 and April 2006 saw similarly low readings.

Contagion

The latest casualty of the rolling emerging market chaos is Egypt. Investors are dumping shares, and its Optimism Index just dipped to 5 again. According to the Backtest Engine, in the history of the EGPT fund there have been 44 days with optimism this low.


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2018-09-20 | Jason Goepfert

It seems like there's a sudden desire to bet on a cyclical resurgence. But not really - it's mostly just a reflection of the looming rebalance to account for the new Communications Services sector.

On September 21, the XLY and XLK funds will be adjusted to account for the new fund,

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2018-09-19 | Jason Goepfert

This is an abridged version of our Daily Report.

There’s no place like home

Fund managers are showing a multi-year preference for U.S. stocks. A popular survey from BAML shows that managers are heavily overweight the U.S. versus both emerging market and eurozone stocks. But that hasn’t necessarily been a sign that the trend will reverse, unlike what we saw last year.

A historic split

Yet again on Tuesday, an abnormally large number of securities on both the NYSE and Nasdaq exchanges hit either a new 52-week high or low. Over the past 2 weeks, there has been a historic cluster of these “split” signals, and every similar cluster preceded a bear market.

Relative extreme

The ratio between stocks and bonds is getting stretched again. While it gave a wonky signal following the election in November 2016 and outright failed in the fall of 2017, most of the similar extremes over the past 9 years have indicated period when stocks were extended and about to take a breather.

Appetite for junk

The JNK high-yield bond fund has taken in an average of more than $150 million per day over the past week. According to the Backtest Engine, over the past two years, when it has taken in this much in assets in this short of a time frame, it managed a gain over the next month only 33% of the time.


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2018-09-19 | Jason Goepfert

Bonds are getting hit again today, after already suffering a few weeks of declines. The move has been enough to push the Optimism Index for bonds down to one of its lowest levels in 15 years.

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2018-09-18 | Jason Goepfert

This is an abridged version of our Daily Report.

Small hasn’t been so beautiful

While leading year-to-date, small-caps have been lagging the S&P over the past few months. The ratio of the Russell 2000 to S&P 500 is very close to falling to a multi-month low, a worse sign for small-caps than large-caps.

Confidence game

A high reading in Consumer Confidence is believed to lead to a higher dollar. The two move together more than Confidence leading, and Confidence has led the dollar only in exceptional cases, ultimately leading to burst bubbles.

End of a trend

The Nasdaq Biotechnology Index closed more than 1% below its 50-day average for the first time in more than 4 months. Dating back to 1993, the end of such long streaks led to some follow-through selling pressure over the next week.


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2018-09-17 | Jason Goepfert

This is an abridged version of our Daily Report.

A “small” split

The Russell 2000 is near its highs, but relatively few of its stocks are trading above their moving averages. There has also been an uptick in its stocks hitting multi-month lows.

The only other times this has happened to this degree were in 2000 and 2007.

Back to bearish

For the first time in a month, despite a rising market, investors have turned bearish, with more bears than bulls in the AAII survey of individual investors. Stocks have struggled in the short-term after similar setups but were okay after.

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

According to the 3-Year Min/Max Screen, there were no new multi-year extremes this week, as hedgers mostly reduced their exposure. Notes from prior weeks remain in effect as hedgers continue to hold near-record positions in metals and ag contracts, while being heavily short the dollar.

Another one

Due to a still-high number of securities sinking to 52-week lows, another Hindenburg Omen was triggered on Friday. That makes 7 out of 9 days, not including 4 days on the Nasdaq.


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2018-09-17 | Jason Goepfert

Stocks in China have dropped again, with the Shanghai Composite now off around 20% year-to-date. Going back to its inception in 1990, this is its 3rd-largest YTD decline through 175 sessions of the year. Given that

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2018-09-14 | Jason Goepfert

This is an abridged version of our Daily Report.

Stalling Financials trigger concern

Even as the S&P tickles a new high, Financials have struggled and are the worst-performing major sector over the past six months. The ratio between Financials to the S&P just hit a new 52-week low, which has been a warning sign, with negative returns over the next two months every time since 1999.

A Transportation myth

Investors believe a breakout in Transports leads to an imminent new high in the Dow Industrials. That hasn’t been the case, at least during the next month, as their record as a leading indicator is poor.

Renewed interest in boring stocks

A few months after being the most-hated sector in a year, interest in Consumer Staples is heating up. The XLP fund took in more than $350 million on Wednesday alone, the most among all sector funds.

A boost in Thai optimism

Among all country ETFs, the Thailand fund, THD, is highest, above 80. While such optimism is usually at least a short-term contrary indicator, when the fund has been below its 200-day average, readings above 80 have led to positive returns over the next year 100% of the time according to the Backtest Engine.


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2018-09-13 | Jason Goepfert

This is an abridged version of our Daily Report.

Growth > unemployment

The President’s triumphant gaffe about a 100-year high in economic success masked a relatively common signal. When GDP growth was higher than the unemployment rate, stock returns were in line with random, suggesting there was more use for politicians than investors.

Trigger warning

On both the NYSE and Nasdaq exchanges, technical warnings have triggered for over a week straight. This is the largest cluster of warnings since 2014, and 3rd-most in 50 years, leading to broadly negative returns, but less so in defensive sectors.

Semi recovery

The SMH semiconductor fund was down more than 3% intraday before recovering to close off just over 1%. Over the past 15 years, it has had similar reversed 29 times.

More outflows

The ICI reports that investors withdrew more than $5.5 billion from equity mutual funds and ETFs in early September. According to the Backtest Engine, such large outflows led to a rally in the S&P over the next month 69% of the time.


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