sentimenTrader Blog


2016-04-15 | Jason Goepfert | Comments

The latest Commitments of Traders report showed some modest changes from last week. The report includes positions as of Tuesday’s close, for which we focus on “smart money” commercial hedgers.

In gold, hedgers moved to their most net short since 2012. They also added to silver shorts which are just off multi-year extremes as well. This is typically a negative for the precious metals but they’ve been able to shake it off recently.

Hedgers also moved to a new multi-year extreme short position in the yen, furthering the extreme mentioned last week.

In the grains, corn and wheat in particular, hedgers added to long positions. The JJG fund has tended to do well when hedgers were extremely net long those two contracts.

20160415_grains  20160415_cot1

20160415_cot2

 


2016-04-14 | Jason Goepfert | Comments

Breadth is not good today, despite most of the major indexes pushing to new 90-day highs.

On the NYSE, the Up Issues Ratio is at 43%, one of the worst figures in 50 years on a day the S&P 500 closed at a 90-day high. There is still some time in the session, but even if the S&P closes modestly negative, this is a bad breadth reading.

The table below shows every time the S&P closed at a 90-day high with an Up Issues Ratio below 45%. As we’ve discussed before, these kinds of situations tend to be a short-term negative but not so much longer-term. We wouldn’t read much into the longer-term returns simply due to one minor day of activity, but if this holds on into the close, it would be a negative for the shorter-term.

20160414_breadth

 


2016-04-12 | Jason Goepfert | Comments

With early gains to start the day, crude oil may finally end a record-breaking streak. It has been below its 200-day average for 427 trading days, by far the longest such stretch in its history.

thumb_20160412_crude_chart

Many traders use the 200-day average to define bull and bear markets, so the chance that crude could be ending its bear market is a potential game-changer for some. For the first time in years, this could cause longer-term trend followers to finally look at crude from the long side.

Let’s go back and look at every time crude went at least 100 days below its 200-day average then finally broke the curse. Returns in the table below are from the day when crude finally closed above its 200-day.

thumb_20160412_crude_table

Unlike many markets that show some follow-through after ending long streaks, crude did not show that tendency. Returns across most time frames up to six months later were weak, with barely more winners than losers. The exception was one year later, when overall returns were good but highly variable including two massive losses.

Late last year, we discussed a handful of reasons why the bear market in crude was likely ending, so we happen to think that the end this streak will lead to positive returns, but based on history we can’t readily rely on the ending of the streak itself to be a positive factor going forward.


2016-04-08 | Jason Goepfert | Comments

The latest Commitments of Traders report showed mostly modest changes this week with no new major extremes.

The major themes in recent weeks were large short positions from “smart money” hedgers in gold, silver and yen, and large long positions in cotton. That hasn’t changed.

In the yen, they’ve pushed their short positions even further, now to the most extreme since 2007.

20160408_cot_yen  20160408_cot1

20160408_cot2


2016-04-08 | Jason Goepfert | Comments

We’ve been asked a few times about a potential reversal pattern in stocks, particularly the tech-heavy Nasdaq.

Stocks have alternated 1% days, which we took a look at in a Note yesterday. There was a mild negative bias over the next month or so, but it wasn’t consistent in recent history.

Looking at the Nasdaq 100, particularly the QQQ fund, it jumped to a 3-month high two days ago and has since sold off at least .75% from the open to close each of the past two sessions.

20160408_qqq_chart

From the fund’s inception in 1999, this has happened 24 times. The table below shows how it performed going forward. There was some mild weakness over the next week, then mostly random returns. It was higher 75% of the time by 13 days later but the sweet spot was around 30 days later when it was higher approximately 80% of the time and with good average returns.

20160408_qqq_reversal

Some reversal patterns have been consistent predictors of future performance, but the price action in recent days is mixed. It has a mild negative tendency but nothing we’d consider to be a factor. We’ve looked at it a number of different ways, all with the same or mixed results.


2016-04-08 | Jason Goepfert | Comments

One of the screens we like to run is funds that are trading at an extreme to their net asset value (NAV). Closed-end funds (CEF) are often driven to premiums or discounts to their underlying value according to demand from retail investors, and when they reach an extreme, can be an effective contrary indicator.

Because of their structure, ETFs don’t often trade at extreme premiums or discounts, and they’re not always related to sentiment when they are, but still when we see a fund trading with a temporary dislocation to its underlying value, it can present an opportunity to see it move the other way.

The tables below show ETFs and CEFs trading at a 52-week high or low premium/discount to their net asset value. Watching these screens can present interesting trading opportunities and sometimes a way to catch overriding themes.

The number of muni funds trading at year-high premiums dropped significantly from last week even as the sector had a decent week.

The most notable fund trading at a discount is TWN, a CEF that invests at least 75% of its assets in stocks trading on the Taiwan Stock Exchange. It has traded at a larger discount in its history, primarily prior to 2003. Since then, it has traded at this large of a discount a handful of times, typically leading to rallies. It’s a place to start for anyone looking to get exposure to that particular niche.

20160408_funds_twn

Among ETFs, there are a couple of biotech funds trading at 52-week high premiums but with the sector getting hit today, those premiums will disappear.

20160408_funds


2016-04-07 | Jason Goepfert | Comments

It’s still early in the trading session but with a bit more weakness into the close, the S&P 500 would be on track to have back-to-back-to-back 1% reversals.

This kind of volatility after a large rally is widely considered to be a negative, as it indicates increasing uncertainty among traders and rising volatility is often a negative sign in general. In the chart, ROC stands for Rate Of Change, the percentage change over the past 42 days and 1 day, respectively.

20160407_reversal_chart

Let’s go back to 1928 and look for any time the S&P had rallied at least 5% over the prior two months, and then had a 1% loss followed by 1% gain followed by 1% loss. Here are the returns going forward:

20160407_reversal_returns

Overall returns were mixed with a negative tone. There were some large losses in the medium- to long-term but that was dominated by the 1930s. In modern markets, it wasn’t so bad but the sample size is so small as to give little context. In the five times it happened since 1950, the S&P was higher six months later by at least 13% each time.

Looking at individual trading days, we can see that if there was consistent weakness, it tended to be between 24-30 days after the reversals occurred. Again, in modern markets these reversals have had less meaning, but we’d consider it a (very) minor negative when looking at the next 4-6 weeks or so.

20160407_reversal_days


2016-04-04 | Jason Goepfert | Comments

At the beginning of each month we like to take a look at upcoming seasonal influences and see if there might be some opportunities for markets that tend to rise this time of year and might be seeing a sentiment extreme at the same time.

Last month, it looked good for several commodities like natural gas and the grains, while gold, silver and sugar were seeing optimism in a seasonally negative time of year.

For April, cotton and energy contracts are looking more promising, along with the British Pound (why there would be seasonal influences in currencies is less understood). Sugar still looks questionable, with relatively high optimism and still-negative seasonality.

20160404_combo_commodities

Among ETFs, April is a consistently positive time of the year for equities so there are few negatives, even as the daily optimism figures are extremely high for several of them. Among those showing pessimism, country funds dominate the list, especially Japan (EWJ) which has gotten hit hard in recent days.

20160404_combo_etf


2016-04-01 | Jason Goepfert | Comments

The latest Commitments of Traders data showed a couple of large changes. “Smart money” hedgers dumped a large number of contracts in coffee, hogs and soybeans. The latter is coming off one of their largest net long positions in years, however, and is not especially troubling.

They remain extremely short precious metals, with gold and silver positions hanging around their most net short in years. They also increased bets against sugar, to a level that has tended to stop rallies cold in that contract.

The most promising among them is cotton, as we’ve noted the past couple of weeks. Hedger positions are near all-time record highs, and that has preceded some good gains in the contract and its associated ETFs like BAL.

20160401_cot_cotton  20160401_cot1

20160401_cot2


2016-04-01 | Jason Goepfert | Comments

One of the screens we like to run is funds that are trading at an extreme to their net asset value (NAV). Closed-end funds (CEF) are often driven to premiums or discounts to their underlying value according to demand from retail investors, and when they reach an extreme, can be an effective contrary indicator.

Because of their structure, ETFs don’t often trade at extreme premiums or discounts, and they’re not always related to sentiment when they are, but still when we see a fund trading with a temporary dislocation to its underlying value, it can present an opportunity to see it move the other way.

The tables below show ETFs and CEFs trading at a 52-week high or low premium/discount to their net asset value. Watching these screens can present interesting trading opportunities and sometimes a way to catch overriding themes (like the large number of muni funds now trading at 52-week high premiums).

20160401_funds


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