In our last submission, we noted that our Wall Street Sentiment Survey data was showing the Surveyees leaning heavily Bearish, implying that the market was very likely to fall immediately, BUT then immediately reverse right after the immediate weakness. That pattern played out well. Our take away overall was that the heavy Bearish lean was indicative of entirely too much Bearishness with the S&P but a spit away from all-time-highs. We were right and the market rallied 150 points higher.
Now, the market is in a very different place.
Last time, the Cumulative Breadth was at all-time-highs and the ITBM was on a Buy. Such is not the case now. Now Cumulative Breadth and the ITBM are both on Sells.
A bright spot for today is our Options Oscillator Buy.
So, here's where we are: all Momentum is down and confirmed. Cumulative A/D Volume is on a confirmed Sell. Our "Best Trend" indicator deteriorated. The Weekly MACD turned back down (but that won't count until the close tomorrow). In short, things don't look good. That said, we DO have what we call a Borderline "Secret Hedge Fund" Buy. Any weakness at all today will confirm a good buy. Those signals are rarely wrong for long in a Bull market. Additionally, we have an Options Oscillator Buy. That ought to give us a bounce shortly too. To be sure, the positives are essentially bottom spotters and if we're in something seriously ugly, they won't work. But are we really in something seriously ugly? That's an important question.
Maybe you have insights into serious economic trouble on the horizon that will drive a panic, but the Financial vs. non-Financial Commercial Paper differential that I am looking at every day FELL to 0.08. That's quite low. This measures the premium lenders are demanding to lend money to financial sector companies vs. non-financial sector companies. If there was a financial disaster coming, I'd expect multiple and persistent readings north of .40 but we're a fraction of that and have been. Meanwhile, the VIX took a HUGE spike (46%).
Now, I don't have to be Hercule Poirot to see some motive here. If I was running a really big fund (and were ethically challenged), and I saw the speculators heavily shorting options premium, I might be looking for an opportunity to buy lots of premium even as I might be willing to orchestrate selling some large blocks of stocks (or futures) at the bid. It doesn't take too much imagination to envision a derivatives strategy that took stocks down (triggering more selling by nervous traders on news?) even as it hedged against the decline, generating the real profits in the VIX derivatives. I'm not accusing anyone of anything, but the mind can muse. I might also add that this decline does fill some key gaps, which we had suspected would be filled before the market would take off.
At the end of the day, personally, I don't see much trouble on the horizon and I have reason to buy. The technicals look undeniably sick, but the most reliable tool we've got--one that has made hundreds of millions of dollars over the years is saying Buy and I've got nothing systemically that says we're going into a Bear. I'm going out on a limb and looking more long, not less so. The Secret Hedge Fund Model will Buy just after the open.
Have a prosperous week!
Mark Steward Young
Wall St. Sentiment