Posts tagged as Models

ETF traders pull out of small caps as fear creeps in

This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.Small slumpThe IWM small-cap fund has been suffering one of its worst stretches in a decade, with ETF traders consistently pulling money from it over the past ...

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Testing indicators + models

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What I'm doing - applying the Stock/Bond ratio to models

Today's post is different. I don't have any particularly interesting stats, so I'd like to show you what I'm working on. This work is not complete, but here's a quick glance.As you know, I like trading models because they give us clear buy and sell signals. A popular long term model is the ... [...]

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Gold Has Only Done This 4 Other Times

This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.Stocks down, bonds upHeading into the last few sessions of the month, the total return on the S&P 500 was on track for one of its worst in almost 30 years ... [...]

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What I'm looking at - DAX, Put/Call, all-or-nothing, gold:silver ratio, AUDUSD

With the U.S. stock market still up significantly year-to-date, other countries' stock markets have performed more poorly. Here's what I'm looking at.DAXLast week we looked at why small caps are underperforming large caps. In a nutshell, earnings matter, and small cap earnings are deteriorating ... [...]

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Stocks Have Gone Absolutely Nowhere

This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.Going nowhereThe most benchmarked index in the world has gone nowhere for over a year and a half. The S&P 500 was just trading at the same level it was at in ... [...]

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Market overview: combining technicals & fundamentals

I usually write an overview of the markets each week that combines the technical & fundamental indicators I look at:Technicals (1-2 months): no clear edge in either direction. If I had to guess, I think there’s a 60% chance that the S&P makes new lows. Not decisive.Technicals (3-6 months): ... [...]

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Financials As A Sick Canary

Financial correctionLess than three weeks ago, financial stocks within the S&P 500 were within spitting distance of a fresh 52-week high. Now they’re mired in a correction, having pulled back more than 10% from their high.That’s a quick turnaround, which always worries investors. This was not a ... [...]

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The Dumb Money Is Nearing Maximum Confidence

Confidence nears upper boundOver the last couple of days, Dumb Money Confidence has poked above 80%. While it has gone higher over the past 20 years, this is in the top 2.3% of all readings.'It’s high enough that it has preceded weak returns, especially in recent years, and those times when ... [...]

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Dumb Money Confidence Reaches 80%

Dumb Money Confidence has exceeded 80%, which is lower than where it was in April but still historically high, ranking in the top 2.3% of all daily readings since 1999.When it has been above 80%, the S&P 500’s annualized return was -4.5%, versus +35.1% when Confidence was below 25%. After ... [...]

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Wednesday Color - Dow Stocks, Dumb Money, Gamma, Microsoft Expectations, Germany

Here's what's piquing my interest as some of the negatives that have piled up start to take some effect.Sector BreadthIndustrial stocks have been chugging higher, and it has been enough that nearly every Dow Industrial stock is trading above their 50-day moving average. This is the best out of ... [...]

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This Has Only Happened Twice In 40 Years

High confidenceDumb Money Confidence has recovered from its dip below neutral territory in May. Now above 77%, it’s to a level that has preceded weak annualized returns in stocks.As a signal, the first reading above this level after a dip below 50% has led to mostly weak short- and medium-term ... [...]

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Monday Color - Short-Term Optimism, Funds Vs Options, Lagging Small Caps And Surprises, Bulls Return, Bonds

Here's what's piquing my interest as markets suffer their usual post-holiday slide.Short-Term ExtremesWhile stocks didn't surge last week, they did hold their gains. And whoever was still trading over a holiday week was pretty optimistic it was going to continue.The shortest-term indicators we ... [...]

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Tuesday Color - Fund Manager Panic, New Model, OEX, UAE, Miners

Here's what's piquing my interest as stocks jump on the latest hopeful headlines.Fund Manager PanicWe've already seen evidence that individuals have reached near-panic conditions over the past few weeks. They took out a massive number of hedges, they've said they're near a record level of ... [...]

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What A Steeper Curve Really Means

Curve steepensInvestors are fairly obsessed with the yield curve and its potential message for all markets. The widely watched spread between 2- and 10-year Treasuries neared inversion but has quickly reversed and hit its highest level in 6 months.The steepening is often what causes trouble, but ... [...]

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From Risk-On To Risk-Off In Near-Record Time

Risk-on to risk-off in a monthIn April, investors were showing extreme risk-on behavior, according to their eagerness to buy some markets over others. Barely a month later, that has cycled to extreme risk-off behavior.The first risk-off reading following risk-on behavior has usually led to a ... [...]

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Confidence Has Flipped From Dumb To Smart

Confidence flipFor the first time in four months, Smart Money Confidence has moved above Dumb Money Confidence.Usually by the time the spread between them has flipped after several months, stocks were seeing the last bits of selling pressure.With one major exception, these were mostly good ... [...]

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Sentiment Is Curling

Summation finally weakensWe’ve discussed the McClellan Oscillator and Summation Indexes a lot in recent months, because they have been showing notable readings of momentum. That’s starting to ease with the long-term Summation Index, which dropped below 750 for the first time in months, ending ... [...]

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Most Confident "Dumb Money" In A Decade

Maximum optimismDumb Money Confidence has been climbing steadily for a month, and stocks have so far shrugged off that extreme optimism. Now it has reached its highest level in a decade.Every date that saw this high of a reading in the past 20 years sported a negative return in the S&P 500 at ... [...]

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Dumb Money Confidence Highest In A Decade

As noted in the Daily Report, Dumb Money Confidence has soared to its highest level in almost a decade. It's also extremely high for being a couple of weeks into the earnings reporting season.Both studies have led to consistently poor returns for stocks in the weeks and months ahead, so we're ... [...]

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Tuesday Midday Color

Here's what's piquing my interest so far today.Super ConfidentDumb Money Confidence has entered a "super extreme" phase. In the 20 year history of the model, only two distinct time periods can compare - the recoveries from the last two major bear markets. That was a good long-term sign of ... [...]

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Wall Street Analysts Are Catching Up To Dumb Money

Not-so-dumb moneyDumb Money Confidence rose to an extreme in February, yet the S&P 500 has tacked on more than 5% since then, suggesting it’s not so dumb after all. The recent gains in stocks have attracted more of these traders, and their Confidence just surged to a new high – that has been a ... [...]

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Tech's Perfect Signal

Tech’s fully recoveryOut of the S&P 500’s 11 major sectors, only one has made a fully recovery from the December decline, and it’s an important one. The information technology group has fully recovered from its decline of more than 24%.Other times it fully recovered a drop of 20% or more within ... [...]

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What Happens When Oil Recovers From A Plunge

A crude recoveryAs markets sold off in December, crude oil futures fell more than 30% below the 200-day average, one of the largest deviations since their inception in 1986. This week, they made a complete recovery, now trading above the 200-day.Other times the commodity recovered from such a ... [...]

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Dumb Money Does A 180

Full recoveryOver the past 50 days, Dumb Money Confidence has averaged 70%, the highest since early 2018. This marks a complete cycle from the extreme pessimism in December. When the 50-day average first breaches the 70% level, it has typically coincided with a temporary reprieve in unrelenting ... [...]

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Tuesday Midday Color

Here's what's piquing my interest so far today.Breadth ReviewThe jump on Monday triggered a number of new extremes. Every material stock rose above their 10-day moving averages, which we don't see too often. If we add some context and look for times it triggered when XLB rose above a declining ... [...]

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No Pessimism Even As Small-Caps Struggle

No pessimismOn Monday, the last of our core indicators that was showing a hint of pessimism dropped off. At the same time, 40% of them were showing optimism. The last two times that happened, the S&P formed a kind of rounded peak.Since 1999, many of the positive returns were clustered in 2017, a ... [...]

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Tuesday Midday Color

Here's what's piquing my interest so far today.CautiousAccording to the latest monthly BofA fund manager survey, big money managers are still not showing any optimism toward equities as a general asset class, with only a 3% overweight. It has been declining consistently for the past 2 years and ... [...]

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Wednesday Midday Color

Here's what's piquing my interest so far on this weak day.Ebbing MomentumThe S&P 500 has finally closed below its 10-day moving average for the first time in at least 40 sessions. That's one of its most persistent short-term trends since 1928.At the same time, it has flattened out. Over the past ... [...]

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Slowing GDP As Survey Sentiment Rebounds During A Nice Couple Of Months

Slowing growthThe GDP release relieved some investors by being better than feared. But forecasts show that growth this quarter is likely to be the lowest in 8 quarters.Like we’ve seen during past studies looking at economic or earnings recessions, the hype doesn’t often translate to forward ... [...]

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Wednesday Midday Color

Here's what's piquing my interest so far today.Gold continues to rally. GLD just put in its best day in over a month while closing at a 9-month high. Lately, that's led to some backing-and-filling over the next couple of sessions, especially in recent years.Not working in gold's favor is ... [...]

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Extreme Greed As Utilities And Yields Forge Unholy Alliance

Extreme greedThe 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 ... [...]

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Back To Greed; Low Exposure; Oscillator Streak

This is an abridged version of our Daily Report.Back to greedThe CNN Fear & Greed model has gone from extreme Fear in December to Greed now.It’s not unusual to see it swing this much, this quickly, but it is unusual when the S&P 500 still hasn’t made it above its 200-day averages. And those ... [...]

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CNN Fear & Greed Back To Greed

One of the helpful models into the meltdown into late December was the proxy for the CNN Fear & Greed model. It dropped into the single digits, which has consistently led to rallies. Now it's back above 75 and into Greed territory. When the model has cycle from Fear to Greed while the S&P 500 ... [...]

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Narrowing Smart-Dumb Spread; 4 Straight Up Weeks

This is an abridged version of our Daily Report.Narrowing spreadAs stocks rally, Dumb Money has become more confident while Smart Money has increased their hedging activity. The spread between the two hit a multi-year extreme before Christmas and is now nearing zero for the first time in ... [...]

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Smart - Dumb Money Spread Nearing Zero

The spread between Smart Money and Dumb Money Confidence is ending its streak above zero for the first time in months. When the S&P 500 has been mired in a downtrend at the time, this has led to medium-term negative returns. [...]

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Studying The Studies

This is an abridged version of our Daily Report.Studying the studiesLike last year, we take an objective look at the studies posted to the site in 2018. Using a conservative estimate of their expected value, we can see that it still makes sense to observe the markets in this way. When we ... [...]

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A Pre-Holiday Review

The release of some of the weekly data we follow has confirmed just how extreme last week’s activity moved sentiment. I will be travelling for the holiday, so no end-of-day report will be published.One of the most reliable gauges we have is showing an extreme like we’ve rarely seen. When we ... [...]

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Another Volatile Session

This is an abridged version of our Daily Report.Another volatile sessionSome early optimism on Thursday was quickly erased, and stocks dove to new lows for this move. In the process, it triggered several extremes:* The Nasdaq is on the threshold of a 20% decline.* The percentage of securities ... [...]

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Oil And Energy Collapse; RSI Divergence; Smart-Dumb Money Extreme; Overwhelming Lows

This is an abridged version of our Daily Report.No energyCrude oil collapsed with a large loss and 52-week low on Tuesday. That’s not what the Energy stock sector needed right now but taking the chance that we’re whistling past the graveyard, the losses on Monday and Tuesday may just be bad ... [...]

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Testing A Wide Disparity Between Smart And Dumb Money

With the volatility in stocks this week, the spread between Smart Money and Dumb Money Confidence rose to 55%, the widest since January 2016.Our Confidence indices use mostly real-money gauges - there are few opinions involved here. Generally, we want to follow the Smart Money traders when they ... [...]

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Thanksgiving Selling; Heavy Pessimism; Monday Gaps

There certainly wasn't much of the typical pre-holiday buoyancy in markets last week. Bucking the traditionally positive, low-volatility holiday trading, markets got hit hard, particularly the stock market.That left the S&P 500 at a 6-month low the day after Thanksgiving, which has never ... [...]

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A Bad Month; Wide Confidence Spread

This is an abridged version of our Daily Report.A bad monthThe S&P suffered 16 negative days in October, tied for 3rd worst since 1928 and the most since 1970.The pressure was enough to trigger a sell signal for a popular trend-following strategy, with a close below its 10-month average, that ... [...]

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Stocks, Sectors In Correction; Nasdaq's Bad Day; S&P Negative YTD; Spike In Pessimism

This is an abridged version of our Daily Report.Stocks in correctionThe S&P still hasn’t suffered a correction, if we define it by a 10% decline from a 52-week high. With the severe loss on Wednesday, it has just barely missed the cut. Most of its stocks haven’t been so fortunate, however. With ... [...]

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Major Reversal; Jump In New Lows; Dumb Money Purge

After the big reversal on Tuesday, futures were indicated to gap lower again on Wednesday. In the history of the S&P 500 futures, that had led to rebounds over the next several sessions every time.As it stands now, futures have recovered, which dampens the short-term outlook quite a bit. ... [...]

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Quick Change In Character; Smart Money Steps In; Emerging Stocks Rebound

This is an abridged version of our Daily Report.A quick change in characterThe S&P went from 52-week high to below its 200-day average in only 3 weeks. That ended a streak of more than six months above its 200-day average. Other times it underwent a quick change in character, from a 52-week high ... [...]

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Goldman Model Predicts Trouble As Grains Get Hit

This is an abridged version of our Daily Report.Model troubleA Goldman Sachs model incorporating five fundamental factors shows a high risk of an imminent bear market in stocks.When the model reaches its current level, the average S&P 500 return over the next six months was negative 6%.No gains ... [...]

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Most Shorted Stocks Surge With Optimistic Momentum

This is an abridged version of our Daily Report.Short squeezeThe most shorted stocks in the market have outperformed the S&P by a wide amount in recent weeks. An index of heavily shorted stocks has jumped nearly 10% to a new high.After similar short squeezes, the S&P outperformed heavily shorted ... [...]

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Model Updates

We've had some requests to post updates on a few popular models from the site, so below are current snapshots of the spread between our Smart Money and Dumb Money Confidence, the Medium-Term Optimism Index, and a proxy of the CNN Fear & Greed model.All three reached modest levels of pessimism in ... [...]

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Strategy Development with the STEM.MR model

The STEM.MR model (Short-Term Extreme Model - Mean Reversion) is one of our short-term models.From the description of the model:It was developed because several of the shorter-term sentiment indicators we follow have displayed a mean-reverting tendency in the past. Meaning, when they go "too ... [...]

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New Functionality: Threshold Returns for Models

This weekend we added Threshold Returns, a small (but important) new piece of data to our models.Threshold returns provide a view into the annualized returns for the underlying symbol while the model/indicator value is above / below / between the extreme values for that model/indicator. ... [...]

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