This is a Guest Post by AK of Fallible
AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.
Sentiment, positioning, and technicals ALL say that we’re getting close to the bottom of this move. And the market is setting up for a monster rally (at least in US stocks).
Let’s start with sentiment.
We’re still waiting for the capitulation spike in bearish sentiment via the Investors Intelligence report, but we should get that this week.
Other indicators and signs of sentiment suggest that bearish sentiment is finally becoming near consensus.
BofAML’s Bull & Bear Indicator is near “Extreme Bearishness” levels and should give a buy signal in the week(s) ahead.
UBS’s composite positioning amongst fund managers in US stocks show that fund manager holdings of US equities are near extremely oversold levels relative to history.
The mainstream non-financial news is now predicting a market crash in 2019. The above is from the NYT’s Lifestyle section of all places. This is NOT what you see at market tops.
Ron Paul is back to making headlines pitching doom and gloom.
AAII bearishness is at its highest levels since February 2016.
The State Street Investor Confidence Index for North America is at its most bearish level since 2012.
The percent of stocks trading above their 200-day moving averages is now at 19%. This is DEEPLY oversold territory. The last three times the indicator was this low, it marked major bottoms in the market.
Now look at the giant gap between the ISM in the US and YoY change in the SPX. They typically track each other as the ISM is an indicator of economic growth in the US and therefore company earnings. This type of divergence is extremely rare and should be closed by the SPX doing most of the work by moving higher.
I believe US stocks are setting up for an extraordinary buying opportunity. I see a LOT of amazing deals in stocks. I’ll be putting out our shopping list later this week. I think we see a major bottom in the next 1-3 weeks.
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***All content, opinions, and commentary by Fallible is intended for general information and educational purposes only, NOT INVESTMENT ADVICE.