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Over the past 20 days, indicators showing optimism have exceeded those showing pessimism by a near-record degree; It's happening in the Smart Money / Dumb Money spread, too, but over a 50-day period; The S&P 500 is above its daily, weekly, and monthly Bollinger Bands; Hedgers are still shorting platinum, buying natural gas
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No sudden movementStocks are enjoying a preternaturally long stretch of calm, with no big moves for more than 3 months. Troy has been noting this trend for a while, and it keeps going. This is now the 17th-longest streak since 1928.Periods of extreme calm tend to precede at least some future volatility, and we can see that in the risk/reward skew in the table. Risk was as high or higher than reward up to three months later.The S&P’s median return was below average across all time frames ...
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The S&P 500 hasn't moved more than 1% in a single session for more than 3 months; Equity funds continue to see massive outflows, with bonds seeing inflows; The SPY fund's assets have been shrinking even while it's rallying; The 50-day average spread between Smart and Dumb Money is nearing a record; A lot of utilities are above their Bollinger Band
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Here's what I'm looking at:Trade war dataWith the U.S. and China having signed a trade deal, it'll be interesting to see if manufacturing and trade-related economic data will turnaround in 2020. Thusfar it has not. The Cass Freight Index (Expenditures), which measures North American freight expenditures, has fallen more than -6% over the past year:This may seem alarming, because this typically happened in an earnings recession or economic recession. However, it isn't a clear bearish sign ...
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The MACD indicator (Moving Average Convergence Divergence) is a momentum and trend following indicator that demonstrates the strength of the market's momentum. But unlike other guides online, I won't just show you how to use this indicator in a generic way and how well it "works" (only showing you the successful trades while sweeping the failures under the rug). Instead, you'll discover in this post:What is MACD and how is it calculatedHow traders use this indicatorSkepticism towards MACDHow ...
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5-year high in bull marketsMore than 85% of stocks in the S&P 500 have managed to close above their 200-day moving averages, the most in five years. This ends the longest such streak in 30 years.When stocks are coming out of a prolonged downtrend, this is an excellent buy signal. When it triggers with stocks at or near new highs, it’s more of an exhaustion signal in the medium-term, but still a good sign long-term.Deteriorating fundamentalsWe saw last week that there is a 15-year high in ...
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More than 85% of S&P 500 stocks are above their 200-day moving averages, the most in 5 years; Over the past week, an average of about 22% of Nasdaq 100 stocks hit new highs and became overbought (RSI above 70); More and more stocks have operating earnings below where they were a year ago; Almost all Fidelity select managers are beating the return on cash
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Asset managers at record exposureAsset managers are now holding a net long position of nearly 30% of the open interest in major equity index futures, the most ever. While history is limited, other times they held a large amount of the open interest didn’t pan out so well for their bets.The only dates that show a positive return over the next 1-2 months were the ones from last November. And to be fair, the jury is still out on those.Overall, the sample size is relatively limited in terms of ...
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Asset managers are holding a net long position of nearly 30% of open interest in equity index futures, a record high; Wall Street analysts are upgrading technicals (price targets) but not fundamentals (earnings estimates) to a near-record degree; The McClellan Summation for high-yield bonds has been high for almost a year; A lot of bonds are hitting new highs, too
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A speculative recordOnce again last week, options traders became even more aggressive. It has reached record levels by some metrics. As a percentage of total volume, speculative call buying last week hit a level never seen in the past 20 yearsThat’s the most ever, eclipsing the prior peaks that happened to equate with notable peaks in the S&P 500.An argument could be made that for every buyer there is a seller. But these are customer orders. Even if a customer is buying a call as a stock ...
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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.
