The S&P 500 has gone from an almost-bear market to within 3% of its high, one of its quickest-ever recoveries; Nearly half of all Treasury yield curves are inverted, which has been a boon to staples stocks; The Dollar ended a long streak above its 200-day average; Almost all markets we follow are in Phase 2, rising optimism, and risk in all major markets are above average
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Here's what's piquing my interest so far today.FOMC ReversalStocks are trying to fully reverse any weakness from earlier this week. If SPY closes at a new high for this move, it would be the first time traders pushed it to at least a 100-day high the day following a FOMC meeting since 2014. Other times that happened, SPY tended to pull back in the days ahead.Utilities PauseOn Monday, we saw how stretched the utilities sector was, with the kinds of breadth readings normally reserved for ...
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Dollar failureThe U.S. dollar hit a new high in early March, and optimism was high. That proved to be a headwind again, and the buck has since reversed to close at a 30-day low.This is an unusually quick reversal and quick reversals in the dollar like this have been a negative sign. During the next week, the dollar managed to reverse its decline only 19% of the time. A few of those reversed in the weeks and months ahead, but for the most part, the weakness stuck around.Fed-ExedThanks in part ...
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The U.S. dollar has gone from a 52-week high to a 30-day low in almost record time; The ratio of Dow Transports to the S&P 500 has hit a multi-year low even as the S&P rallies to a nearly six-month high; The yield on 10-year Treasury bonds hit a 52-week low; TLT and GLD both rallied after the FOMC decision
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Thanks in large part to poor performance from Fed-Ex, the Dow Transports are really struggling, especially on a relative basis.The ratio between the Transports and the S&P 500 just hit a multi-year low, which isn’t something we see too often when the S&P itself is trading at a nearly six-month high. It has led to significantly poor returns for stocks in the months ahead.
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The buck has had a tough time of it lately, and Wednesday’s update from the Fed did not help. The dollar has reversed hard in the past two weeks, going from a 52-week high to a 30-day low in almost record time.It has been unusual to see such a rapid reversal in the dollar, and its future short- to medium-term returns were poor.
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Here's what's piquing my interest so far ahead of the FOMC craziness.Tweeps Loving ChinaSocial sentiment among Twitter users has become very optimistic over the past month. The 20-day average of Social Sentiment on FXI has dropped below 1, meaning that on an average day, there have been more optimistic Tweets about FXI than bearish ones. That hasn't been a good sign.By contracts, when Twitter users were posting at least 75% more bearish messages than bullish ones, a sign of high pessimism, ...
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No pessimismOn Monday, the last of our core indicators that was showing a hint of pessimism dropped off. At the same time, 40% of them were showing optimism. The last two times that happened, the S&P formed a kind of rounded peak.Since 1999, many of the positive returns were clustered in 2017, a year when trend-following momentum ruled everything. If we exclude that single year from the results, then it got quite a bit uglier with risk more than twice as high as reward over the next 2-3 ...
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On Monday, not one of our indicators was showing pessimism, while more than 40% were showing optimism; As the S&P 500 hit a 100-day high, the small-cap Russell 2000 was more than 2% below its own high; The India-focused PIN and INDA funds are showing extreme optimism; The Brazilian Ibovespa index hit a high but its McClellan Summation Index is lagging
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Here's what's piquing my interest so far today.CautiousAccording to the latest monthly BofA fund manager survey, big money managers are still not showing any optimism toward equities as a general asset class, with only a 3% overweight. It has been declining consistently for the past 2 years and is now the lowest in 30 months.This is not an automatic buy signal. Fund managers held a low (and declining) allocation throughout the 2008 bear market, so trying to fade that in a contrarian way was ...
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Sundial Capital Research is an independent investment research firm dedicated to the application of mass psychology to the financial markets. Sundial publishes the sentimenTrader.com website.
Our focus is not market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence.
