Let’s quickly review the market and see if we should still be bullish. And we’re going to do a quick update on JD.com as well!
Financial conditions, though tightening in the rest of the world, remain flush in the US. This is supportive of a continued uptrend in stocks. And the rate of change (ROC) in yields has settled down and is now a tailwind for stocks.
The ROC in inflation is beginning to perk up which is something we need to keep an eye on. But the current reading remains neutral and is a tailwind for stocks. The ROC in inflation matters because positive inflation surprises cause shocks to the bond market which drives yields higher and sucks capital out of stocks.
The AAII Sentiment Survey, which is a great indicator of short to intermediate sentiment, shows that bullish sentiment is back down at 33%. This is a bullish tailwind for stocks. When bullish sentiment rises above 40% we need to start being on the lookout for a correction.
Advisor sentiment is a good sentiment indicator on a slightly longer-term basis. When sentiment rises above the 60% levels it indicates excessive bullishness and we should expect a sizable correction at some point. Currently, advisor sentiment is sitting at 57% and trending higher. This is bullish for stocks in the short to intermediate term.
The percentage of stocks trading above their 50-day moving averages is at 50%. This is a neutral reading and is supportive of stocks moving higher from here. When 70% of stocks trade above their 50-day moving averages is when the market becomes technically overextended and we should expect a pullback.