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This week saw another jump in speculative activity, especially among small options traders. That's worrying, as the rally has flattened out while below the 200-day average on the S&P 500. There were a few positives, though, like the continued recovery in tech shares and Monday's additional breadth thrust.
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Every week for the past 12 weeks, investors have pulled money from overseas equity mutual funds and ETFs. It's on a scale now that rivals the worst of the 2008 financial crisis. Domestic funds have seen less outflow on a relative basis.; The S&P 500 has been stuck in a range for a month, above its medium-term 50-day moving average but below its long-term 200-day average. Based on other long streaks of being stuck between time frames, there has been a higher likelihood it will break the streak by falling below its 50-day average. But future returns were weak, no matter which way it broke.
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Every week for the past 12 weeks, investors have pulled money from overseas equity mutual funds and ETFs. It's on a scale now that rivals the worst of the 2008 financial crisis. Domestic funds have seen less outflow on a relative basis.
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Over the past few sessions, traders have turned over less than half the number of put options as call options, a sign of optimism.
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The S&P 500 has been stuck in a range for a month, above its medium-term 50-day moving average but below its long-term 200-day average. Based on other long streaks of being stuck between time frames, there has been a higher likelihood it will break the streak by falling below its 50-day average. But future returns were weak, no matter which way it broke.
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Growth stocks have massively outperformed value stocks during the current stock market rally. Can we expect growth to underperform in the future?
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Financial conditions around the world are easing as economies start to rebound and financial markets calm down.
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For the first time in months, sentiment is becoming equal between "smart money" and "dumb money" indicators. When that happens and stocks are still in longer-term downtrends, it has tended to lead to poor returns. The biggest caveat to that is if buyers persist shorter-term, it has indicated powerful longer-term recoveries.; Over the past 3 days, the Equity-only Put/Call Ratio has been below 0.5, meaning options traders turned over half has many puts as calls, typically a sign of optimism. Stocks have struggled when the ratio was this low over a 3-day period, and it hasn't happened since 2002 when the S&P 500 was below its 200-day average.
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For the first time in months, sentiment is becoming equal between "smart money" and "dumb money" indicators. When that happens and stocks are still in longer-term downtrends, it has tended to lead to poor returns. The biggest caveat to that is if buyers persist shorter-term, it has indicated powerful longer-term recoveries.
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Articles mentioning the "fear of missing out" have spiked even as the S&P 500 hasn't been able to close above its 200-day average. It neared that average three weeks ago and so far has been unable to break through.
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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.
