Per yesterday morning's essay, there may be emerging developments that could have the most ardent bear reexamining his/her dire thesis right here.
As we've expressed a zillion times over the years, fear is a good thing for stock prices when it reads to the extreme... In a recent post I shared the net pessimistic (contrarianly bullish) read of our own "fear/greed" index. The latest from the Merrill Lynch Fund Managers Survey (courtesy of Bespoke Investment Group) confirms that read:
"According to the report, exposure levels to risk assets were taken down to their lowest levels since the Financial Crisis while cash levels are higher now than at any other time since 2001!"
Not that we've suddenly become raging bulls right here, but, as always, our aim is to remain utterly objective, and, therefore, open to all possibilities...
Interesting market. Swing of +650 points yesterday for Dow and Dow increases +600 points today. Yes, risks are much lower compared to the Financial Crisis. However, one can argue that the bear market is still very tricky. IBM has growth issue. Many of other companies are still overvalued. But Wall Street still bets on a better than expected earning. Time will tell and we will see what happen.
ReplyDeleteNot calling an end to the bear market here, but acknowledging that pessimism is high at the moment (that's generally bullish), and some of the underlying data now conflicts with the outright bearish narrative.
DeleteIn terms of earnings, they're hugely in question right here. Of course the real question is what, if anything, has been priced in.
As I illustrated recently, the majority of the time when we enter earnings season with net negative analysts' revisions (which was the setup coming in this time), the market actually gains through the season... But that's not a reason to think a durable bottom is in -- that comes from the data (and the technicals), and, on balance, it's beginning to suggest that perhaps we won't see the lows that some are predicting... I still like our 3,500 target, but keeping an open mind!
Also, with regard to yesterday and today, the setup leading into VIX options expiration tomorrow was bullish for today.. Yesterday, the whole time the market rallied, the VIX was elevated. We flagged that internally as a risk to yesterday's early rally... Today, the VIX sold off from the get go, which (along with the positioning heading into tomorrow morning's expiration) placed better odds on today's rally not completely dying before the close...
My point being, there are factors deep in the weeds that can hugely impact these big short-term moves that have little to do with the important overall fundamentals...
And, lastly, keep in mind that the biggest one day rallies tend to occur during bear markets... And, I have to add, at the end of bear markets... Again, not calling the end at this point, but we have to everyday rethink our theses and never establish an emotional bias in one direction or the other... That's the only way to stay open to all possibilities...
Thanks Marty! I agree that fundamentally we are well positioned for the long run. Yes, you are absolutely right that we are nowhere near the bottom. With a huge surge in VIX as a good indicator, we will know when the bottom is here.
DeleteAs you know Sam, you can never know for sure, but you're right VIX tends to offer some semblance of a bottom signal. Today, however, there are vol sellers like we've never seen before, which could indeed make for different dynamic this go-round... Again, never know...
DeleteAlso, forgot to mention above, there's big net short interest among SP500 futures traders... huge covering today