Monday, June 12, 2023

Morning Note: Sneaky Sentiment, and Your Weekly Results Update

As we've been flagging lately, our sentiment indicator is beginning to notice a crowd forming over on the bull side of the proverbial boat (investors sneaking over from the bear side).

Here we'll highlight 2 of our 8 inputs to give you a feel for why that's something to pay attention to.

First, here's a chart of the "Equity Put/Call Ratio" from the market peak in January 2022...  Low readings denote declining interest in protection, or in downside speculation... In the top panel I circled where the ratio hit, or broke below, 50... In the bottom panel I circled those same points on the SP500 graph and drew an arrow in the direction it took shortly thereafter:

So, 75% of the time during the current bear market our signal spelled falling-market-ahead.

And here, top panel, is our chart of the American Association of Individual Investors’ widely-followed sentiment survey... Green line represents bullish sentiment, red line bearish... I red-circled the times when the spread went positive (more bulls than bears), and yellow-circled when it came too close (contrarianly-speaking) for comfort... In the bottom panel I circled those same points on the SP500 graph and drew an arrow in the direction shortly thereafter:

2/3rds of the time a decline shortly followed... Note that the present signal is far and away the "strongest" of the current bear market!

Stay tuned...

Asset Class/Sector/Regional Results Update:

Asian stocks were mostly green overnight, with 12 of the 16 markets we track closing higher.

Same for Europe leaning so far this morning, with all but 16 of the 19 bourses we follow trading up as I type.

US equity averages are (save for the Russell) mostly up to start the session: Dow by 58 points (0.17%), SP500 up 0.33%, SP500 Equal Weight down 0.03%, Nasdaq 100 up 0.49%, Nasdaq Comp up 0.35%, Russell 2000 down 0.31%.

As for Friday's session, US equity averages closed (save for the Russel) mostly higher: Dow up 0.1%, SP500 up 0.1%, SP500 Equal Weight up 0.04%, Nasdaq 100 up 0.3%, Nasdaq Comp up 0.2%, Russell 2000 down 0.8%.

This morning the VIX sits at 14.73, up 6.65%.

Oil futures are up 3.49%, gold's down 0.16%, silver's down 0.93%, copper futures are down 1.27% and the ag complex (DBA) is up 0.09%.

The 10-year treasury is down (yield up) and the dollar is up 0.03%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 22 -- led by Dutch Bros, VNM (Vietnam equities), XLK (tech stocks), HACK (cyber security stocks) and FEZ (Eurozone equities) -- are in the green so far this morning... The losers are being led lower by Albemarle, DBB (base metals futures), XLE (energy stocks), SLV (silver) and MP Materials.

There's never a bad time for my all time favorite market quote:

"People get all excited about the price movements, but they completely misunderstand that there is a bigger picture in which those price movements happen. Price movements only have meaning in the context of the fundamental landscape. To use a sailing analogy, the wind matters, but the tide matters, too. If you don’t know what the tide is, and you plan everything just based on the wind, you are going to end up crashing into the rocks."

--Colm O'shea

Have a great day!

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