This is Part 2 of a weekly update on the U.S. stock market's long term fundamentals. Part 1 can be found here. Fundamentals 1-3 years: market timingI don't try to predict the future of the economy. Plenty of very smart people try, and when you add up the successes+failures, the results are usually no better than a 50/50 coin toss. That's why I focus instead on leading economic indicators. Look at what has already happened instead of predicting the future.The economy drives corporate ...Signup / Login to read this post
The HiLo Logic Index has jumped over the past week, showing there is a wide split underlying the indexes; The entire Treasury yield curve is now normal after going 50 days with more than half of it inverted; Hedgers are long the VIX and sugar, short metals; The Smart/Dumb Spread is historically negative
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.Double troubleFor the first time in several months, two technical warning signs triggered on the Nasdaq exchange. There hasn’t been a cluster, and they haven’t triggered on the NYSE, but even a single day with both warnings triggering has preceded consistently poor returns for the Nasdaq Composite.The basic guidelines for the Hindenburg Omen are that the ...
Here's what I'm looking at:Breadth & sentimentBreadth has been rather weak recently, with relatively few stocks making highs along with the broad index. This has caused the NYSE HiLo Logic Index to exceed 2.5:Such high readings represent a relatively split market, which hasn't been great for stocks in the past. The following table demonstrates every case in which this Index exceeded 2.5, and what the S&P 500 did next:As you can see, the S&P's returns are consistently worse than average over ...
Two warning signs (Hindenburg Omen and Titanic Syndrome) triggered on the Nasdaq on consecutive days; The S&P rose in the past 7 days but breadth was negative on 6 of those days; The forward price/earnings ratio on the equal-weight S&P 500 is below the ratio for the capitalization-weight index; Low volatility stocks have dropped while the S&P rises
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.There’s always tomorrowSince early October, holders of the S&P 500 have not had to suffer back-to-back losses. It’s been 25 sessions since the S&P faced losses on consecutive days, its longest streak since 2012, one of the longest since 1998 - and even among the longest going all the way back to 1928.Most momentum-related studies show even more strength ...
Here's what I'm looking at:OECD U.S. Composite Leading IndicatorAs Willie Delwiche mentioned, the OECD U.S. Composite Leading Indicator continues to sink to levels that were often reached during recessions. This indicator looks at Consumer Confidence, interest rate spreads, new orders, manufacturing, among others. Not surprisingly, manufacturing continues to weigh on this indicator:When this indicator fell below 98.8 in the past, the S&P's returns over the next few months were often ...
The S&P 500 has not suffered back-to-back losses for 25 sessions, the longest stretch in 7 years; Another corner of the bond market is seeing unusual selling pressure, BB-rated collateralized debt obligations (CLOs); The spread in optimism between XLU and XLK is wide; The Russell 2000 has enjoyed a Golden Cross
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.Volatility eventSeveral indicators influenced by the options market are throwing off concerning readings, showing that traders have become complacent about the current trend.We’re currently seeing weeks of low put/call readings, with low premiums being paid for put protection, very low expectations for an imminent volatility event, and heavy betting ...
Here's what I'm looking at:Rotation (continued)Looking at sector sentiment, it's clear that there's been a shift away from defensive sectors like utilities and a rotation into cyclical sectors (as Jason also mentioned)XLU Optix's 10 dma is now below 30, while XLK Optix's 10 dma is now above 70. This is quite a spread. The 4 other times this has happened from 1999-present, it has generally be bullish for utilities and bearish for tech (including the broad U.S. equity market).Here's what the ...
