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Call option buying among customers has hit an all-time high relative to total volume, and the Options Speculation Index has spiked again; The equal-weighted S&P 500 index keeps hitting 5-year lows relative to the capitalization-weighted S&P; The ratio of technology to financial shares has become extremely overbought
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The Energizer rallyDespite extremes in sentiment which started to pop up in November, stocks continued to rally. After the spread between Smart and Dumb Money fell to -50%, the S&P has since enjoyed almost uninterrupted upside. This is the best reaction in 20 years after such extreme sentiment.Instead of ignoring failures, we pay special attention to them, because sometimes it tells us something important about what's going on and if the risk/reward skew has changed.In this case, it doesn't ...
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Here's what I'm looking at:Tech vs financeAs the stock market's rally rages on, the tech sector has surged relative to other sectors such as finance. (As interesting reads, see the WSJ's take on how big tech is moving into finance and Bloomberg's take on how Wall Street is being changed by machines/tech).Regardless of why tech stocks are massively outperforming finance stocks, the S&P 500 Technology vs. Finance ratio has surged, pushing its RSI above 80.When tech outperformed finance ...
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The Smart Money Index (SMI), also known as the Smart Money Flow Index, is a technical indicator which tries to gauge what the "smart money" is doing vs. what the "dumb money" is doing in the U.S. stock market. It suggests that investors and traders should follow the "smart money" instead of the "dumb money". In this post you'll learn about:What is the Smart Money IndexHow is this indicator calculatedHow to use the Smart Money IndexDoes the Smart Money Index actually work? If not, why ...
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The U.S. stock market has thusfar refused to pullback despite many sentiment & contrarian extremes. Here's my market outlook:Long term risk:reward (e.g. 1-5 year basis) doesn’t favor bulls. Valuations are high, but valuations can remain high for years before stocks crash.Fundamentals (6-12 months): still bullish because there is no significant U.S. macro deterioration.Technicals (1-3 months): bearishFundamentals (6-12 months)The economy and the stock market move in the same direction in the ...
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The spread between Smart and Dumb Money Confidence hit an extreme over two months ago, yet stocks have still rallied, with the best-ever risk/reward ratio; There is a 15-year high in money-losing companies in the Russell 3000, as investors gobble up money-losing and venture-backed IPOs; 7 out of 20 days saw call option volume double put volume; Hedgers are still short metals and commodities in general
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An “un-split” marketIn November, a main reason for worry was the “split” in the market. On the Nasdaq and then the NYSE, there were an abnormally large number of both winning and losing stocks. When that has happened before, stocks consistently declined over the short- to medium-term. Those warnings failed, and badly.Since then, the market has become “un-split” as there are few remaining losing stocks. Now, it’s almost all winners. That has pushed the HiLo Logic Index to a very low ...
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Here's what I'm looking at:Relentless rallyIf it seems like the S&P 500 is making a new high every day, that's because it has been doing just that. The past 3 months have seen 26 new all-time highs (using daily HIGH $).The last time this happened was in late-2017, just as the U.S. stock market began a blow-off top that ended with a crash in January-February 2018. After that, we'd have to go back more than 20 years to the 1990s to find similar cases. And of course the worst such cases were in ...
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The market was very split between winners and losers last fall but has now un-split with the HiLo Logic Index falling to a low level; There were no bank failures in 2018 and only a few in 2019, with fewer than 25 over the past 5 years; Options traders keep trading twice as many calls as puts; Sentiment extremes haven't been working
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Dip-buyers are determinedSeveral times over the past week, stock futures saw weakness in the overnight session. But as soon as regular trading hours opened, dip-buyers did their thing. It became even more egregious if we include Wednesday's session following the Iran conflict and subsequent intraday recovery.The return on S&P 500 futures during regular trading hours exceeded the return overnight by an average of 0.74% over the past week, the largest spread in months. This 5-day difference ...
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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.
