This is an abridged version of our Daily Report.

Somebody turn on the lights

GE got booted from the DJIA after 100 years, after a similar stretch of poor returns from Alcoa when it was removed…and before it doubled during the next year.

Other stocks that got removed from the Dow did fine going forward, with a slightly better chance of a 20% gain versus a 20% loss.

Old school vs new school

The old school S&P and Dow indexes are lagging the Russell and Nasdaq. The former are down more than 3% from their highs while the latter hit new highs on Wednesday.

That has led to better performance in the laggards going forward.

Needing a shot of java

Coffee is back to being the most-hated commodity, with an Optimism Index of 22. It has been in a persistent bear market for 7 years, and it has been incessant over the past year. Even so, according to the Backtest Engine, coffee has rallied 80% of the time.

At least it looks nice on a ring

Platinum is giving coffee a run for its money, with Optimism sinking to a lowly 23. The Backtest Engine shows that platinum has rallied 70% of the time.

This is an abridged version of our Daily Report.

Emerging market bond rout

U.S. high-yield bonds have outperformed emerging market bonds by 7% in 50 days.

Such wide spreads have led to rallies in emerging market bonds more than U.S..

Stock rout, too

Emerging market stocks have lagged U.S. stocks by 8% through mid-year. Other bouts of underperformance led to further losses for emerging market stocks.

Short-term exhaustion

While lagging emerging market stocks tend to continue to lag through year-end, there can be periods where they shine. Price action like Tuesday and a huge outflow from the EEM fund on Monday suggest we may be about to see that.

Bears can’t gain traction

The S&P 500 fund, SPY, has gapped down at the open then closed higher than its open for the past 3 sessions, frustrating bears. It’s rare to see a string of 3 such days in a row, with only 10 signals since the fund’s inception.

This is an abridged version of our Daily Report.

Small traders become aggressive

The smallest of options traders have become remarkably aggressive in betting on a market rally.

Their volume of opening call purchases is nearing record highs, last seen in 2000 and 2007. They are spending more than 42% of their volume on buying calls, the most in more than a decade.

A bad few weeks for beans

Soybeans have lost more than 13% in a few weeks and closed at the lowest level since 2013.

That’s one of the largest losses since 1970, which has led to multi-week rebounds. Longer-term returns were mixed, and there are other headwinds like seasonality.

All in, and then some

Last week, active investment managers went to a leveraged long position in stocks. Sounds bad, but the Backtest Engine shows that over the next month, the S&P 500 rose 82% of the time after the other times managers were this aggressively long.

A week of small losses

The Dow Industrials have lost ground for the last 5 sessions, but no more than 0.5% each day. That has triggered 18 times since 1929.

This is an abridged version of our Daily Report.

Gold bugs’ ruined weekend

Heading into the weekend, gold futures suffered their largest loss in over a year, to a multi-month low. When it happened it May, the selling marked an exhaustion and gold worked higher. Most times it did something similar, rallying over the next month but not beyond.

Big boys are driving the gains

A handful of very large stocks have been driving gains in the S&P 500 and Nasdaq 100 over the past year. The capitalization-weighted S&P and NDX are outperforming their equal-weighted twins.

Prior times the cap-weighted indexes did so well for so long, the trend reversed, but not right away.

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

The 3-Year Min/Max Screen shows that “smart money” hedgers are the most heavily short copper in years…ever, actually. If you Choose A Secondary Indicator and view hedgers’ positions as a % of open interest, they’re holding about 25% of contracts net short.

This is an abridged version of our Daily Report.

Emerging disappointment

Economic surprises in emerging markets have been consistently, and increasingly, negative.

That has led to mostly poor returns in emerging market stocks and currencies. It has been better for emerging market bonds (in dollars), with positive total returns most times.

Traders are leaving

One positive sign for the stocks is that ETF traders are leaving funds like EEM, which suffered a $750 million exodus on Wednesday alone.

Nasdaq’s June high

The Nasdaq Composite scored another new high as we head into mid-June. Prior highs around this time led to some short-term weakness, primarily into the end of the month. After that, there wasn’t much to chew on for the “worst six months” crowd in tech.

Bond options

While bond funds like TLT pull back, options traders in 10-year Treasury futures have been buying calls to an extreme degree. The 10-day average of the 10-Year Put/Call Ratio is down to one of its lowest levels in years.

This is an abridged version of our Daily Report.

Short squeeze

The most shorted stocks in the market have outperformed the S&P by a wide amount in recent weeks. An index of heavily shorted stocks has jumped nearly 10% to a new high.

After similar short squeezes, the S&P outperformed heavily shorted stocks going forward.

Optimistic momentum

Heading into Wednesday, short-term optimism had been extreme for 8 out of the last 10 days. That’s a sign of buying momentum that isn’t seen very often. After other times it triggered, stocks struggled in the very short-term but not after that.

Fed prediction

Using markets’ knee-jerk reaction following a Federal Reserve meeting as a predictor for future returns is a questionable strategy. Since the 2009 low, the S&P 500’s reaction on a FOMC day predicted the next day’s return 58% of the time. 

This is an abridged version of our Daily Report.

Bond market battle

The spread on high-yield bonds has sunk to a multi-year low, while investment-grades are at a year high. That is exceptionally unusual, as corporate spreads typically move more or less together.

It seems like it should be a good sign, but the few prior instances led to a stumble in stocks.

Small business boom

The latest survey of small business shows record optimism, especially as a time to expand. The highest levels of optimism have led to mixed returns that favor small-cap Value over Growth. Micro-cap stocks also struggled, with negative returns over the next 1-2 years.

Optimistic momentum

We haven’t seen too many signs of momentum during the rally off the April low in stocks. Just a few here and there. One that’s starting to show is the Short-Term Optimism Index has been above 70 for 8 of the last 10 days, which hasn’t happened since last October.

Long-term pessimism

If you go to the Dashboard and click the Optix Heatmap under the Sentiment Indicator Summaries section, you can click the “50 Days” button, for example, and it will show most- and least-loved assets over the past 50 days.

This is an abridged version of our Daily Report.

Options traders go all in

Options traders have rushed into bullish strategies at the expense of more conservative ones. Total call volume last week mushroomed to 32 million contracts, the highest since late January, while put volume was about average.

Much of that was small traders buying call options to open, not a good sign for stocks.

TIPS seeing some love

Investors are rushing into TIPS funds that protect against a rise in inflation. Previous spikes in assets led to inconsistent returns in the funds, making it hard to read into this.

Intraday give-up

Ahead of major news events this week, investors didn’t seem to intent on making big bets either way. The S&P 500 fund, SPY, open and closed in the bottom 25% of its intraday range, even while hitting a multi-week high intraday. That has happened 22 other times in its history.

This is an abridged version of our Daily Report.

Euro Death Cross

For more than a year, the euro’s 50-day average has been above its 200-day average.

That trend has now ended, after one of the longest streaks in the currency’s history. The end to other long streaks led to further weakness in the euro and gold, while the dollar did well (see inside).

Down days have more oomph

So far in 2018, the average down day has been 20% larger than the average up day.

That’s among the worst ratios since 1928. It has been an inconsistent warning sign, though stocks did struggle through August (see inside).

Staples stabilize

Consumer Staples finally rallied above the 50-day average after hitting a multi-year low. That has led to an excellent risk/reward in the sector over the long-term (see inside).

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

“Smart money” hedgers continued to add to their decade-long high exposure to the Swiss franc. Same with hogs, where they are below a record long position by just a hair.

This is an abridged version of our Daily Report.

ETF investors stay home

Flows into domestic ETFs have swamped that of overseas funds over the past 4 weeks.

The other times it happened to this degree, world stocks started to outperform the S&P.

Mom & pop ignore safety

Individual investors are showing one of the widest differences in allocations to stocks vs safe investments. The spread between the two has been seen twice before. Both times, there was a long-term rotation out of stocks and into bond.

Cubes got engulfed

The Nasdaq 100 fund, QQQ, hit a high then put in a bearish engulfing pattern. That has led to some very short-term weakness, not so much after that.

Exposed

According to the NAAIM organization, the average active investment manager is now 90% net long stocks, and even the most bearish manager is long (usually there’s at least one short seller). Since the 2006 inception of the survey, there have been 22 other weeks when this was the case.