Friday, May 13, 2022

Our Fear/Greed Indicator Is Reading Green...

In Monday's morning note I made the case for a potential "oversold bounce" in the stock market this week. I mentioned the possibility again in last evening's video commentary. 

Just scored our PWA Fear/Greed Barometer (consists of 10 indicators that capture the mood among individual investors, investment advisors, futures and options traders). It came in this week at +50, which is 40 points "better" than last week's reading.

Now, perhaps counterintuitively, a "better" score for this particular measure means there's higher fear in the market -- per my commentary in our latest market snapshot video:

"...that's typically how real bear markets end. It's complete capitulation, nobody wants anything, the last of the people who are going to sell, in theory, are out, and just a modicum of good news, or no good news, and money starts coming in. The sellers are gone, and all that's left are buyers." 

And while some pundits are indeed suggesting we're there, that's not our observation at this point. 

I continued:

"Right now we can see in the ETF data that we track every week, there are still a lot of flows going in, lots of people buying the dip, so we're not seeing that." 

"That" being complete capitulation.

As I type, a half-hour before the close, the Dow's up 496 points on the session, the SP500's up 2.58%, and the Nasdaq Comp's up a whopping 4.11%... That's what I'm talking about! 

However, alas, this sort of action is to be expected amid what is, all things considered, a bearish setup... Now, this one could very well last beyond just a day or two (unlike those rip-your-face-off rallies we've seen the past few weeks)... Or maybe not, we'll know soon enough.

Have a nice weekend!