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Market Outlook: Short-term psychology improving…but not enough

Market Outlook: Short-term psychology improving…but not enough

– MRI worsens on drop in monetary conditions and not enough improvement in psychology to offset it
– Short term psychology improving – higher put/call ratios and highest 10 Day ARMS Index reading is higher than December 2018.
– But, negative Internals with a fresh High Low Logic Index sell signal
– Overbought bond momentum makes short term reversal in bond yields likely.

World Wrap

World Wrap

– After a big decline Monday, equities spent the rest of the week clawing their way back to closing less than 1% lower on the wk. Bonds and REITs climbed.
– Rally in bonds boosted utilities stocks by more than 1%. Energy stocks were big losers over the week and challenging Healthcare as worst performing sector ytd.
– China is thought to be holding back on large stimulus on economic weakness, keeping it in reserve if trade war escalates.
– Reuters reports that Trump believes his Fed criticism is working and is likely to continue to push the Fed for more easing going into election year.

Market Outlook – AAII bearishness surges…yield curve inversion hits new depths

Market Outlook – AAII bearishness surges…yield curve inversion hits new depths

– Surge in AAII bears, but not enough to move our psychology basket out of the bottom decile.
– Yield curve inversion goes sets new cycle lows.
– Buybacks surged Monday. S&P 500 buybacks have pushed the payout ratio beyond 100%.
– Broad commodity trend turns down, but gold trend is strong.
– Trimmed position in long term Treasuries on overbought Bond Momentum readings.

World Wrap

World Wrap

– Global equities and commodities sell off dramatically as bonds and REITs rallied. Uncertainty around path of interest rates and Chinese tariffs blamed.
– Warren Buffett’s cash pile rises to a record $122 billion. In an echo of 1999, Berkshire Hathaway stock is down in a year where large cap stocks are up big.
– After announcement of addl Chinese tariffs, Yuan has weakened to a record low for offshore trading, breaking important psych barrier of 7 Yuan per dollar.
– Post Powell comments and Trump tariff announcement, bond market pricing in 100% chance of another cut in September, up from 56% a wk earlier.

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Market Risk Index

Market Risk Index scales from 0 to 100%. Higher readings correspond with higher risk markets. Scores below 25% are bullish. Scores between 25-75% are neutral, and scores above 75% are markets vulnerable to major drawdowns.

Model Category Readings (Percentiles)

  • Psychology 99.7% 99.7%
  • Monetary 87.2% 87.2%
  • Valuation 99.3% 99.3%
  • Market Trend 9.8% 9.8%