Firstly, a quick “capsyn” perspective and comment on the recent ‘sell off’.
The S&P 500 is now 3% below her all-time high. Last week’s movements appeared volatile but they are merely volatile relative to recent past. The ‘correction’ is severe therefore only when viewed as a part of this late-stage parabolic advance. I remind that we have not seen a single 2.5% weekly decline since June of 2012. The multi decade median average for this historical frequency of decline, we should have had eight of them in this period.The US$ continues to march on. EM indexes are endangering some key levels and the spread between the UST and US junk is starting to widen again. All issues need to be monitored.
Lets turn to the latest institutional market reports:
First up CS Wealth with their global multi market monthly
& here their weekly:
& here the JP American equity team, staying bullish
And moving to the FX markets here the excellent weekly report from CS on the major pairs:
And here the JP weekly FX review:
Here JP’s daily technical strategy FX doc:
And here the MS weekly FX report:
Here the Yardeni technical briefing:
There is comment above in the JP report that sentiment has already corrected as AAII sentiment has corrected and is no longer in obvious contrarian territory. The AAII has all sorts of statistical problems but ignoring these my point would be that whilst sentiment may be shifting allocations cannot. These markets are thin and participants cannot shift allocations as easily as their optimism or pessimism shifts. I mention here the record pace of speculation on borrowed money, with NYSE margin debt now at 2.5% of GDP – an amount equivalent to 26% of all commercial and industrial loans in the U.S. banking system.
Note these are inflation adjusted nos above
And here another chart on the issue below. If you consider that credit growth in the US is in negative territory again Nyse margin debt increases set a worrying and steep divergence between main street and wall street. Historically that has always ended badly on Wall Street!
Or i could mention the 10-week average of advisory bulls at 57.7% versus just 14.8% bears – the most lopsided bullish sentiment in decade in fact. The question here for technical analysts amongst you is whether you prefer an average and hard data like margin debt as clearer indicators of sentiment than the weekly straw poll data. I would of course suggest all should be followed and that in thin markets extra special weight be given to average nos and margin debt. It is also worth recalling that ‘debt’ is usually US$ debt and the US$ has been strengthening vs all comers. This is usually a head wind for asset markets.
And here finally below a market breadth chart for the Nasdaq100. The tech US index that I’m overweight to the downside on at present. She has not provided the beta short as yet. But her breadth remains very weak. A small ‘winners circle” of fashionable stocks is holding her up. This could of course sustain but capital likes to herd but downside risk is ever increasing in the nasdaq100. This chart below shows the number of nasdaq100 stocks above their 50 day ma. Given we are only 7 trading sessions from the nasdaq all time high we would expect the number of stocks to above their 50 dma to be very high in this parabolic bull market. In reality the number of stocks are less than 50%. This is a very risky index now due to these technical issues. If a few of the ‘cheerleader’ stocks break some of their key levels the nasdaq 100 will increase in volatility to the downside. Its all probabilities, that’s all we can do.
All the best
Rich