This week’s Stock Market commentary and sentiment can best be described by country star Chris Janson’s song, “Good Vibes:”
I ain’t watchin’ TV today
Bad news, it can just stay away
If you ain’t got anything good to say
Then shut your mouth
I got my windows down and my blinders on
Radio set to my favorite song
All green lights on the road I’m on
Man, there ain’t no doubt
While the market is pulling back in most of the participants who were caught off-sides (short) on coronavirus, there are a few things we must start to look out for, or the song that describes the market is going to change quickly. Here are the factors at play – which I covered on TV yesterday (including a decline in 2020 EPS estimates this week):
The basic argument was close to what I updated on TV yesterday – and that is, the forward multiple is high (~19x) and we need more earnings to sustain the rally. It goes into three areas where we can look for earnings progress and finish out the back half of the year strong – even if we have to digest the 19% and 26% moves in the S&P and Nasdaq (off the August lows) in coming months.
It also covers the importance of the Fed’s actions in coming months – and why maintaining liquidity will be the key to increasing labor force participation.
Now onto the shorter term view for the General Market:
This week’s AAII Sentiment Survey result (Video Explanation) Bullish Percent rose to 41.33% from 33.87% last week. Bearish Percent fell to 26.40% from 35.22% last week.
The CNN “Fear and Greed” Index did not confirm the AAII sentiment jump as it stayed the same this week (60 was unchanged). You can learn how this indicator is calculated and how it works here: (Video Explanation)
And finally, this week the NAAIM (National Association of Active Investment Managers Index) (Video Explanation Here) dropped from 77.07% equity exposure last week, to 62.49% this week (the opposite of the AAII sentiment results). Managers will have to play “catch-up” once again if we get follow-through on this week’s move.
Our message for this week is similar to the last few weeks:
We remain bullish in the intermediate term (for 2020). As we have stated in our recent notes, we have trimmed some names that have had huge runs off of the August/September lows, and had re-allocated some profits into sectors/stocks that had just begun to participate.
We also recently added a few selective shorts. The short positions are not due to bearishness per se, but rather “special situations” that we believe will work even in a sideways to up market and outperform in the event of a pullback.
You can review our previous notes under the category “Sentiment” on the right side of the site.
