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Daily Report for 08-26-2020

Jason Goepfert
2020-08-26
Daily Report for 08-26-2020
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NOTE: I'll be taking a break from publishing fresh research this week. The last week in August is typically the lowest-volume one of the year, often with unreliable price changes. And, to be frank, we're seeing some of the most unusual conditions I've seen in 25 years and feel like time away from the day-to-day may help with some perspective.

Weirdest ever: I've watched nearly every tick in markets for 25 years. I've posted over 10,000 notes. And this might be the weirdest market I've ever seen. Once again on Wednesday, major indexes like the S&P 500 soared while the average stock fell. We've been noting these oddities for weeks, and they haven't mattered, at least for the S&P index that everyone watches. As a result of the relentless rise in the indexes and consistent weakness in most securities, the S&P reached yet another 52-week high, yet the McClellan Oscillator closed at -37 on Wednesday. Of the 10 worst-ever Oscillator readings on a day the S&P reached a new high since 1962, 4 of them were set in the past week.
This is also the first time since the year 2000 when the S&P jumped more than 1% to a new high while the VIX "fear gauge" rose more than 5%.

Bottom Line:

  • Weight of the evidence has been suggesting flat/lower stock prices short- to medium-term again; still suggesting higher prices long-term
  • Indicators show high optimism, with Dumb Money Confidence above 80% with signs of reckless speculation during what appears to be an unhealthy market environment, historically a bad combination, though it's easing somewhat and so far the dangerous / odd conditions have not mattered to the major indexes
  • Active Studies show a heavy positive skew over the medium- to long-term; breadth thrusts, recoveries, and trend changes have an almost unblemished record at preceding higher prices over a 6-12 month time frame
  • Signs of extremely skewed preference for tech stocks neared exhaustion by late June, especially relative to industrials and financials (here and here)
  • Indicators and studies for other markets are showing less consistent forward results, though it's not a great sign for Treasuries that hedgers are net short and optimism on metals recently became extreme with concerning 100-day analogs, with "perfect" breadth among miners recently dipping a bit.

Smart / Dumb Money Confidence

Smart Money Confidence: 33% Dumb Money Confidence: 80%

Risk Levels

Stocks Short-Term

Stocks Medium-Term

Bonds

Crude Oil

Gold

Agriculture

Active Studies

Click here to view the Active Research the site.
Time FrameBullishBearish
Short-Term01
Medium-Term813
Long-Term471

Indicators at Extremes

Click here to view on the site (% Extremes and "Excess" tabs on the dashboard).
% Showing Pessimism: 8%
Bullish for Stocks

VIX
Rydex Bull/Bear RSI Spread
OEX Put/Call Ratio
Mutual Fund Flow (no ETFs)
% Showing Optimism: 46%
Bearish for Stocks

Smart Money / Dumb Money Confidence Spread
Intermediate Term Optimism Index (Optix)
Smart Money Confidence
Short-term Optimism Index (Optix)
Dumb Money Confidence
% Showing Excess Optimism
Fidelity Funds Breadth
NYSE High/Low Ratio
S&P 500 Down Pressure
OEX Determination Index
Rydex Ratio
Rydex Money Market %
SPY Liquidity Premium
Equity Put/Call Ratio
VIX Term Structure
OEX Open Interest Ratio
Equity Put/Call Ratio De-Trended
Total Put/Call Ratio
SKEW Index
Options Speculation Index
AIM (Advisor and Investor Model)
ROBO Put/Call Ratio
NAAIM Exposure Index
Retail Money Market Ratio
NYSE Available Cash
Mutual Fund Cash Level
Equity / Money Market Asset Ratio

Portfolio

PositionWeight %Added / ReducedDate
Stocks29.8Reduced 9.1%2020-06-11
Bonds0.0Reduced 6.7%2020-02-28
Commodities5.2Added 2.4%
2020-02-28
Precious Metals0.0Reduced 3.6%2020-02-28
Special Situations0.0Reduced 31.9%2020-03-17
Cash65.0
Updates (Changes made today are underlined)

After stocks bottomed on March 23rd, they enjoyed a historic buying thrust and retraced a larger amount of the decline than "just a bear market rally" tends to. Through June, there were signs of breadth thrusts, recoveries, and trend changes that have an almost unblemished record at preceding higher prices over a 6-12 month time frame.

On a shorter-term basis, our indicators have been showing high optimism, with Dumb Money Confidence recently above 80%, along with signs of reckless speculation during what appears to be an unhealthy market environment, historically a bad combination. While there are certainly some outlier indicators that are showing apathy or even outright pessimism, a weight-of-the-evidence approach suggests high risk over a multi-week to multi-month time frame.

I've been carrying a low (too low) level of exposure to stocks, as well as bonds and gold. I don't see a good opportunity to add to any of those currently, with poor prospects pretty much all the way around. As worried as I am over the medium-term, I would only grudgingly reduce my exposure even further given the longer-term positives we spent so much time discussing in the spring. At this point, I would only look seriously at lowering exposure further if the S&P 500 starts to show some sign of faltering, which so far has been almost completely absent.


RETURN YTD: -1.5%

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

Click here to view the Phase Table on the site.

Ranks

Click here to view on the site (Ranks tab on the Dashboard).

Sentiment Around The World

Click here to view on the site.

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

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