sentimenTrader Blog


2019-02-08 | Jason Goepfert

Failed

After two months below its 200-day average, the S&P approached it this week but then took a step back on Thursday, closing more than 1% below.

Other times it approached its 200-day after at least a month below, and then showed signs of failure, it tended to close above its average soon, but even so its returns over the next 2-3 months were weak. On average, it only took 7 more days before the S&P finally closed above its 200-day average, but there was extreme variability among the dates.

Nasdaq, too

The Nasdaq didn’t get quite as close to its own 200-day average, but it, too, shows signs of failure. Like the S&P, other failures preceded weak returns over the next couple of months, but not beyond that.

Mirror image

Over the past 30 days, the S&P’s path has been close to a mirror image of the 30 days leading into the Christmas Eve low. The decline was consistent with a loss of more than 10%, while the rebound has also been consistent with more than a 10% gain. Other times this happened, it preceded some weakness over the next month and was inconsistent beyond that.

Bitte halten

The EWG fund tracking German stocks is showing an Optimism Index below 20 while the fund (barely) holds above its 50-day average. According to the Backtest Engine, that has led to a modest tendency to rebound. Perhaps more notable, there was a solid positive correlation between its returns over the next week and next six months.

This post was an abridged version of our Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-07 | Jason Goepfert

Fear is slipping

Even while the S&P 500 remains below its 200-day average, the VIX has slipped to a multi-month low and is well below its long-term average of 20.

This has consistently led to trouble over the short- to medium-term as the ebbing of concern showed that investors were too quick to price in lower volatility. Most notably, over the next six months only two days managed to sport a positive return, and those were small.

Anything but average

The thrust in stocks over the past few weeks has taken almost all S&P 500 stocks above their 10- and 50-day averages, while fewer than 60% of them have managed to climb above their 200-day averages.

Over the next month, it was quite negative, with only 3 gains versus 6 losses, and risk twice as large as reward. But after that, the thrusting nature of the signals led to generally positive returns. Momentum does not die easily.

Glittery

Optimism on gold has been ticking higher and is now above 60. During bear markets, optimism often peaks before getting much beyond 60 (during bull markets, it usually stays above 40). During gold’s bad 7-year stretch, when the Optimism Index was this high, its average return over the next month was -1.4% with only 28% of the days showing a positive return according to the Backtest Engine.

A little less strong

The McClellan Oscillator has ended its streak above 50 after 22 days. That was the longest streak in history. The only ones nearing it ended after 19 days on 1962-11-30 and 1966-11-11.

This post was an abridged version of our Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-06 | Jason Goepfert

Escaping the bear

The Nasdaq Composite has ended its bear market, at least according to two metrics. Unlike its rallies during the 2001 and 2008 bear markets, this time it has managed to exceed the 61.8% retracement of the decline. And it has rallied 20% from its low, the accepted definition of a bull market.

Both developments have led to continued positive returns for the index.

Not buying it

In December, mutual fund investors pulled a massive amount out of equity funds. During January, it was ETF investors’ turn. Despite the big rally, U.S. equity ETFs saw an outflow, the first time ever during such a positive month.

Other times there was an outflow during a positive month, it was a good sign, with a caveat.

The Commitments of Traders report has been released, covering positions through December 31

Due to the government shutdown, the CFTC is releasing two reports a week until they get caught up. The latest release covers positions through year-end. There were no new extremes of note on the 3-Year Min/Max Screen. While not extreme, it’s at least worth noting that hedgers have been rapidly decreasing their large long position in 10- and 30-year Treasuries.

Emerging rally

The Optimism Index on the emerging markets fund, EEM, is at 88, 2nd-highest among the ones we follow. Per the Backtest Engine, a reading above 87 when the fund is above its 200-day average led to further gains over the next week 42% of the time.

This post was an abridged version of our Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-06 | Jason Goepfert

The VIX "fear gauge" has been steadily slinking lower, picking up its pace lately - nearly enough to close below its lower Bollinger Band. In the process, it has dropped to a multi-month low, even though the S&P 500 remains (barely) below its 200-day average.That 200-day filter is important, ...

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2019-02-05 | Jason Goepfert

After falling into bear market territory, the Nasdaq Composite has ended it, at least according to two subjective metrics. The tech-heavy index has rallied 20% (rounded) from its low, and it has exceeded the 61.8% Fibonacci retracement of the decline, which it was not able to do in 2001 or 2008.

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2019-02-05 | Jason Goepfert

Extreme greed

The CNN Fear & Greed proxy model has moved further into optimistic territory, now showing Extreme Greed, pushed higher by most of the components in the model.

Other times it has become this stretched in a downtrend, future returns were almost exclusively negative. There were 99 days since 1998, with only 28% of them showing a positive return two months later.

Unholy alliance

Utilities stocks are highly sensitive to the moves in interest rates. Higher bond yields usually mean lower prices for Utilities, so the rolling correlation between them is almost always negative, at least since 1962. Lately, though, it has become very positive, and that has preceded some tough market environments.

For Utilities stocks, it was an even worse development. The Dow index suffered losses over the next 3-9 months every time, and they were large. For bonds, it was a similarly bad sign, as yields headed higher over the next 9 months every time as well.

Energetic

More than 95% of Energy stocks are above their 50-day averages, the most of any sector, while the XLE fund is still trading below its 200-day average. According to the Backtest Engine, this happened 3 other distinct times (Dec 2012, May 2009, Mar 2016).

Tailwinds

According to the Seasonal bias for the most popular ETFs, February has been good to metals and miners (click the Value column header twice for the most positives ones to show up at the top). The Sentiment & Seasonality screen isn’t showing many funds with pessimism during a traditionally positive time of the time, and vice-versa but that will be one to watch to see if any of the commodity-related ones show up in the coming days.

This post was an abridged version of our Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-04 | Jason Goepfert

Record flow

Comprehensive data on mutual fund flows confirm that the massive loss in December for equity funds was the largest on record, dating back 35 years. As a percentage of assets, it was exceeded only by July 2002 and October 2008 in recent history.

Money market funds saw huge inflows, but that was not as consistent as an indicator of investor pessimism.

Back to disbelief

After more than two years of expecting stocks to rally, U.S. consumers have become pessimistic. This has ended a streak of 25 months with more consumes expecting stocks to rally than to decline. Other times long streaks of optimism ended, it was a short-term negative for the following month, but not so much after that.

Mom and pop aren’t buying

After a 5-week rally in stocks, bulls make up only 32% of respondents in the AAII sentiment survey, well below the all-time average of 38%.

There was a distinct difference in performance depending on whether mom-and-pop bought into the rally. After similar rallies with so few bulls, there was a strong tendency to see gains continue. When bulls had rebounded above 40%, stocks fell every time going forward.

The Commitments of Traders report was released, covering positions through December 24

The CFTC will be updating this twice per week until they’re caught up. FWIW, there were no new extremes of note in the report.

This post was an abridged version of our Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-01 | Jason Goepfert

Good overbought

After reaching an extreme oversold reading in December, the long-term McClellan Summation Index has cycled back to an overbought reading. 

What’s notable about this is just how quickly the Summation Index has cycled up to 500 after being so depressed just a month ago. The only time it managed to go from -1000 to +500 within one month was January 24, 1975, which kicked off a major bull move.

This shows that the momentum of the market’s breadth has completely reversed. It has been a good sign, especially for some of the more volatile sectors including Technology and Industrials.

Not a dog

The Dow Industrials Average has led the major “big four” indexes out of a prolonged slump when they have all been trading below their 200-day moving averages.

When the Dow or S&P lead the indexes out of these funks, forward returns were good. When the Nasdaq or Russell led, returns were horrid, especially over the short- to medium-term, and especially for the Nasdaq.

Trend and seasonality

One factor not working in stocks’ favor at the moment is the fact that the S&P just ended January below its 200-day average. We can see from the study that it has led to very poor returns to start February, especially since 1950. 

This post was an abridged version of our Daily Report. For full access, sign up for a 30-day free trial now.


2019-02-01 | Jason Goepfert

The Nonfarm Payroll Report (NFP) is widely believed to be the most important economic report in the U.S., or at least the one with the most sway over markets.This morning's release showed a huge positive surprise, "positive" being many more jobs added than expected. There was a big revision down ...

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2019-01-31 | Jason Goepfert

There are a lot of positives happening right now, especially related to the thrust in market breadth. One factor definitely not in favor, though, is the combination of shorter-term seasonality and longer-term trend.When the S&P 500 has ended the month of January below its 200-day average, the ...

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