Headlines
|
Not much oomph as the Advance/Decline Line lags:
The major indexes have rallied hard off their lows from March. After a couple of initial breadth thrusts, though, overall advance/decline figures have been unimpressive. The Cumulative line on the NYSE is only about 2% off its lows, one of the worst performances relative to gains in the S&P 500 when coming off a 6-month low.
Timeframe tensions:
The S&P 500 has surged above its 50-day moving average and is now the most stretched since 2011. But despite the surge, it's still trading below its long-term 200-day average, triggering tension between the time frames.
Consumers are the most bullish ever (?): The Federal Reserve Bank of New York came out with a survey on Monday showing that consumers are the most optimistic about stocks in the 7 years they've been doing it. That automatically raises a red flag for knee-jerk contrarians, but it's not that easy. We'll see on Tuesday that the survey has a mixed record, and interestingly, those who should know least about the market have the best record, and they're relatively bullish. The "smartest" people have had the worst record and they're currently less optimistic about stocks.
|
Smart / Dumb Money Confidence
Smart Money Confidence: 66%
Dumb Money Confidence: 54%
|
|
Risk Levels
Stocks Short-Term
|
Stocks Medium-Term
|
|
Bonds
|
Crude Oil
|
|
Gold
|
Agriculture
|
|
Research
BOTTOM LINE
The major indexes have rallied hard off their lows from March. After a couple of initial breadth thrusts, though, overall advance/decline figures have been unimpressive. The Cumulative line on the NYSE is only about 2% off its lows, one of the worst performances relative to gains in the S&P 500 when coming off a 6-month low.
FORECAST / TIMEFRAME
None
|
Stocks have been doing very well and approached new highs for the recovery late last week. Well, the indexes did, anyway.
There was a big breadth thrust in the initial kick-off from the low, but since then, there have been more signs that not all securities are coming along for the ride. By Friday, the S&P recovered more than 30% off its low, but the Cumulative Advance/Decline Line for the NYSE hasn't seen nearly as much of a bump. Even the line specifically for the S&P 500 itself has been lagging.
Below, we can see every time the S&P rallied off a 6-month low for 33 days as it has now. But these signals only show the times when the rally in the S&P index was much more than the rally in the A/D Line. For most of these, stocks saw a healthy gain but the A/D Line was barely above its low.
Returns weren't terrible, but over the next three months, the S&P was negative more often than positive, with more risk than reward.
To see if it has made any difference, we can compare the returns after those signals to times when the rally in the S&P was more comparable to rallies in the A/D Line.
Even though breadth was much better in these cases, and the index wasn't outpacing the average stock by much, returns over the next three months still weren't great. Risk was less than in the first table, but overall returns were still uninspiring.
The reason is simply that stocks had already rallied for a month and a half following a low, so the initial kick of buying interest had mostly been used up. It didn't matter much that the A/D Line was lagging, as forward returns mostly followed the same path. There is a very slight negative skew to the returns following lows when breadth was lagging, but not enough to consider it an outright negative.
BOTTOM LINE
The S&P 500 has surged above its 50-day moving average and is now the most stretched since 2011. But despite the surge, it's still trading below its long-term 200-day average, triggering tension between the time frames.
FORECAST / TIMEFRAME
SPY -- Down, Medium-Term
|
When stocks rocketed higher out of a selloff in the fall of 2011, buyers pushed the S&P 500 more than 7% above its 50-day moving average. It hasn't been that far above its medium-term average in the nearly 9 years since, until Friday.
The biggest difference between that time period and the current one is that the October 2011 rally also pushed the S&P above its long-term 200-day average. This time, stocks declined enough that even with the rally, the S&P is still trading below its 200-day.
This sets up an important battle between time frames. Usually, the longer-term environment has won out, at least over the short- to medium-term.
Below, we can see every date since 1928 when the S&P traded at least 7% above its 50-day average while failing to rally to within at least 2% of its 200-day.
Prospects were not great over the next 2-12 weeks. Average returns were bad, consistently negative, and with a very poor risk/reward skew.
You'll see an additional row in the table, titled "1-Yr Corr". This is the correlation between the S&P's return over each time frame and the return 1 year later. There was a 0.47 correlation between its return over the next week and the next year, meaning that there was a relatively good suggestion that if buyers shrugged off the medium-term overbought condition and continued to buy, then it was a good long-term sign.
When we filter the table for those signals that showed a positive 1-week return versus those that didn't, then we can see that impact longer-term.
Three months later, only one of them managed to turn around and show a positive return.
Contrast that with the ones that rallied further over the next week.
Here, the returns were much more positive, and all but one of the negative ones were from the early 1930s. Since then, it's been an even better sign.
There were 53 times when the S&P soared at least 7% above its 50-day average but they were during better longer-term environments when it was more than 2% above its 200-day average as well (instead of 2% below it like now).
After these, returns were much more consistently positive.
The bottom line is that since stocks have rebounded so much during a long-term downtrend, returns over the coming weeks and months are more fraught than if the long-term environment was more positive. And whether investors have enough oomph to keep pushing stocks higher in the coming week(s) will signify whether this is more likely the kick-off of a new bull market, or just a bear market rally.
Active Studies
Time Frame | Bullish | Bearish | Short-Term | 0 | 6 | Medium-Term | 12 | 1 | Long-Term | 37 | 3 |
|
Indicators at Extremes
Portfolio
Position | Weight % | Added / Reduced | Date | Stocks | 49.9 | Reduced 10.3% | 2020-04-23 | Bonds | 0.0 | Reduced 6.7% | 2020-02-28 | Commodities | 5.1 | Added 2.4%
| 2020-02-28 | Precious Metals | 0.0 | Reduced 3.6% | 2020-02-28 | Special Situations | 0.0 | Reduced 31.9% | 2020-03-17 | Cash | 45.0 | | |
|
Updates (Changes made today are underlined)
In the first months of the year, we saw manic trading activity. From big jumps in specific stocks to historic highs in retail trading activity to record highs in household confidence to almost unbelievable confidence among options traders. All of that came amid a market where the average stock couldn't keep up with their indexes. There were signs of waning momentum in stocks underlying the major averages, which started triggering technical warning signs in late January. The kinds of extremes we saw in December and January typically take months to wear away, but the type of selling in March went a long way toward getting there. When we place the kind of moves we saw into March 23 into the context of coming off an all-time high, there has been a high probability of a multi-month rebound. After stocks bottomed on the 23rd, they enjoyed a historic buying thrust and retraced a larger amount of the decline than "just a bear market rally" tends to. While other signs are mixed that panic is subsiding, those thrusts are the most encouraging sign we've seen in years. Shorter-term, there have been some warning signs popping up and our studies have stopped showing as positively skewed returns. I reduced my exposure some in late April and will consider further reducing it if we start to see some lower highs and lower lows. Long-term suggestions from the studies remain robust, but shorter-term ones are significantly less so, and stocks still have to prove that we're in something other than a protracted, recessionary bear market.
RETURN YTD: -8.1% 2019: 12.6%, 2018: 0.6%, 2017: 3.8%, 2016: 17.1%, 2015: 9.2%, 2014: 14.5%, 2013: 2.2%, 2012: 10.8%, 2011: 16.5%, 2010: 15.3%, 2009: 23.9%, 2008: 16.2%, 2007: 7.8%
|
|
Phase Table
Ranks
Sentiment Around The World
Optimism Index Thumbnails
Sector ETF's - 10-Day Moving Average
|
|
Country ETF's - 10-Day Moving Average
|
|
Bond ETF's - 10-Day Moving Average
|
|
Currency ETF's - 5-Day Moving Average
|
|
Commodity ETF's - 5-Day Moving Average
|
|