Thursday, November 2, 2023

Morning Note: Another Bull Trap, Maybe? And Two Must-Read Quotes

In yesterday's chart of the day, I illustrated the point that, at this juncture, weak economic news is strong stock market news... I think I've expounded sufficiently as to why in our latest commentaries... The other thing the equity market has going for it is resoundingly sour sentiment, all of a sudden.

The setup is pretty similar to what we sniffed out at the beginning of October.

Here's from our end of September equity market conditions report:

"As for the signal from the rest of the EMCI inputs, suffice to say that, while October may indeed see a snapback rally (should, for example, now-bearish sentiment see yet another fomo-fueled shift to bullishness), the current setup for equities remains difficult – to put it mildly."

And check out the white circles capturing the first of October, and then the present, on our SP500 daily chart:

So, hence, given our current read on sentiment, and the short-term technicals (as I've been illustrating in recent videos), this week's rally comes as no surprise... And while it may indeed last a while, I fear that it may ultimately be looked back upon as yet another bull trap before it's all said and done.

Now, I captured the way to think about (or the way we think about) the current setup from the 10:00 mark on in yesterday's video commentary... If you happened to have missed it, at least take a look/listen from that 10:00 mark on (although I highly recommend the whole thing! 😎).

Here you go:

Asian stocks rallied overnight, with 13 of the 16 markets we track closing higher.

Same for Europe so far this morning, with 18 of the 19 bourses we follow trading up as I type.

US equity averages are higher to start the session: Dow by 192 points (0.58%), SP500 up 1.05%, SP500 Equal Weight up 1.21%, Nasdaq 100 up 1.18%, Nasdaq Comp up 1.20%, Russell 2000 up 0.44%.

As for yesterday’s session, US equities traded higher: Dow up 0.7%, SP500 up 1.1%, SP500 Equal Weight up 0.4%, Nasdaq 100 up 1.1%, Nasdaq Comp up 1.8%, Russell 2000 up 1.62%.

This morning the VIX sits at 16.31.

Oil futures are up 0.92%, nat gas futures are down 1.55%, gold's up 0.05%, silver's down 0.35%, copper futures are up 0.81% and the ag complex (DBA) is up 0.30%.

The 10-year treasury is up (yield down) and the dollar is down 0.78%.

Among our 31 core positions (excluding options hedges, cash and money market funds), 29 -- led by VNM (Vietnam equities), Dutch Bros, EWZ (Brazil equities), EWW (Mexico equities) and XLRE (REITs) -- are in the green so far this morning... The 2 losers are SLV (silver) and Johnson & Johnson.

Doubling up on the quotes, as both of these fit this morning's message:

"I can't tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way."
--Jesse Livermore


"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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