Market Timing 08 (Apr 2023 - Dec 26)

[behappyalways]

Charts of the Week

1. Largest volume in IWM calls (Russell 2000) ever recently, and a day after that the surge in small caps continued, only to be unwound on Thursday and today.

2. Largest call volume in SPX ever, as 0DTE options traders have become meaningful market participants, accounting for nearly half of all SPX options trading volume.

3. The CBOE put/call ratio also ended the week last week at the lowest level we had seen since early March of 2020.

4. Global liquidity has been ample over 2023. We’ve certainly seen markets rejoice as balance sheets of the Bank of Japan, Bank of China, and even the Fed have expanded.

5. As we see a large amount of US Treasury issuance and other factors, such as tightening credit conditions, we’re likely to also see liquidity fall by about $1 trillion, according to BofA.

6. Tech saw the largest monthly inflows during May since February of 2021, another area worth reflecting on as that was around the time we saw a lot of smaller cap names peak, and market breadth began to narrow further and further throughout 2021.

7. This time there isn’t much roo
m for breadth to narrow further.

8. Last week, we also saw the largest inflow in to tech stocks ever, on top of one of the largest monthly outflows.

9. We can see that the year-to-date returns have been somewhat constrained. If we look at the “magnificent 7” of META, AMZN, AAPL, MSFT, GOOGL, TSLA, and NVDA, then the return on that basket is 54% year-to-date! But the broader market only returned 12% in comparison, and if we net out those companies, the remaining 493 S&P 500 components would only return a paltry 2%.

10. 2023 has been the third best year ever for buy-the-dip strategies. 2021 was the best year on record. 2022 was not a good year for this strategy.

11. Next week we have $296B of Treasury issuance coming in, which is significant and may begin to have a drag impact on market liquidity dynamics.

12. The National Association of Active Investment Managers (NAAIM) survey rose to over 90, which is the highest level we’ve seen since early 2022.

13. With regards to inflation, global supply-chain pressures are continuing to ease.

14. Export data from China, Korea, Taiwan, and elsewhere, that we’re seeing a very sluggish global economy.

15. The Deutsche Bank recession probability indicator has risen to near 100% over the next 12 months, meaning that the indicator says there’s near certainty that sometime over the next year we will be in a recession.

Source: Macrovisor

https://www.macrovisor.com/p/charts-of- ... tter&sd=pf

[winston]

U.S. Stock Market's Weak Rally Appears Unsustainable

By Michael Kramer

Markets view the latest economic data as supportive of ongoing rate hikes, mostly due to the tight labor market, strong wage growth and sticky inflation readings.

The rally in the market remains weak, and the breadth remains narrow and unsupportive of a long-term sustainable rally.

The advance-decline line for the entire stock market has been steadily declining since February, marking a very large divergence from the stock market’s direction.

Over the last 12 weeks, the rally has been contained to 3 sectors, Technology, Communications, and Discretionaries. All three are heavily weighted to just 2 to 3 names that outweigh the sector and drive the returns.

Over the last 12 weeks, the rally has been contained to 3 sectors, Technology, Communications, and Discretionaries. All three are heavily weighted to just 2 to 3 names that outweigh the sector and drive the returns.

Source: investing.com

https://www.investing.com/analysis/us-s ... s_headline

[winston]

Sell in June?

by Jeff Clark

In its most recent survey, released yesterday, the American Association of Individual Investors (AAII) reported that the percentage of respondents expecting the market to rally over the next six months shot all the way up to 45%.

That’s the highest level in a year, and a sharp increase from the previous week’s reading of 29%.

Meanwhile, the percentage of respondents leaning bearish for the next six months dropped to 24%.

That’s the lowest number of bears in a year, and a steep decline from the previous reading of 37%.

And, the Volatility Index (VIX) just generated a broad stock market sell signal.

Folks… this is NOT the time to be committing new money to the stock market.

And, for aggressive traders, maybe consider adding some short exposure.

It looks to me like the bear is gearing up to take another swipe at stock prices.

Stocks are likely to be lower a few weeks from now than where they are today.

Source: Jeff Clark Trader

https://dailytradealert.com/2023/06/10/sell-in-june/

[winston]

'We Have A Storm Coming': — Here Are 3 Defensive Moves He Likes Now

by Jing Pan

“The probability of a recession is much higher in mid-2023 than it was in 1994”.

Now that the borrowing limit has been increased, the government will issue new Treasury securities to finance its operations.

Buy equal-weight S&P 500, which gives each company in the index an equal weight. This means the performance of each individual company has the same influence on the overall index value. Invesco S&P 500 Equal Weight ETF (NYSEARCA: RSP).

Selling cap weight: The standard S&P 500 Index is market cap weighted, so larger companies with higher market capitalizations have a greater impact on the index’s performance. Knapp suggests selling this index.

Reduce tech exposure

Source: Benzinga

https://finance.yahoo.com/news/storm-co ... 42635.html

[winston]

We Want to Own Stocks Right Now

by Brett Eversole

Nasdaq 100 Index took the worst beating in 2022. It dropped a crushing 33%.

The index is up 34% this year. That’s nearly triple the gain of the S&P 500 Index.

It’s easy to look at the boom in the Nasdaq 100 and assume you’ve missed it – or that it’s a false rally after a punishing year, with more pain on the way. But history disagrees.

Instead, the recent setup tells us that the bear market is likely done for good… that more gains are on the way… and that we want to own stocks right now.

Source: DailyWealth.com

https://dailytradealert.com/2023/06/14/ ... right-now/

[winston]

Don’t Be Left Holding the Bag When S&P 500 Tops Out

By Avi GilburtStock

For those that have a sense of market sentiment and market history, you would know that when Barron's comes out with such a bullish cover, it often marks a topping in the market, as it displays the generally bullish sentiment of the general market.

For those that have a sense of market sentiment and market history, you would know that when Barron's comes out with such a bullish cover, it often marks a topping in the market, as it displays the generally bullish sentiment of the general market.

As the market seems to be turning quite bullish, I am starting to turn quite cautious.

The market still has more room for the upside, but I think it is time for everyone to be tightening their risk management. Once this rally completes, I am expecting a sizable drop in the market.

Source: investing.com

https://www.investing.com/analysis/dont ... s_headline

[winston]

JPMorgan says stocks to suffer US$150b rebalancing sales

By Denitsa Tsekova

JPMorgan Chase & Co projects real-money portfolios, including those of sovereign wealth and pension funds, will tilt back in favour of bonds to meet allocation targets, in the largest rebalancing flows to the asset class since the fourth quarter of 2021.

The periodic rejigging could knock off as much as 5% from the price of global stocks,

Source: Bloomberg

https://theedgemalaysia.com/node/671412

[winston]

A $4.2 Trillion Options Event Looms for Newly Minted Bull Market

by Lu Wang

An unusually big pile of options expires Friday.

About $4.2 trillion of contracts tied to stocks and indexes are scheduled to mature. That’s 20% more than a year ago.

It also happens to coincide with the quarterly expiration of index futures and the rebalancing of benchmark indexes including the S&P 500.

Source: Bloomberg

https://finance.yahoo.com/news/4-2-tril ... 32259.html

[winston]

Interest Rate Hikes Are Only Half the Story

by Adam Galas

Since WWII, there hasn’t been a single recession in which earnings didn’t fall. Even when inflation was sky-high, earnings still declined in recessions.

Goldman Sachs is forecasting an 11% recession-fueled market decline this year.

Piper Sandler thinks earnings will fall 15%, Bank of America thinks 16%, and Morgan Stanley thinks it will be a 20% drop. The Fed’s own bank lending data is currently consistent with -13% earnings growth.

The bottom line is this: The Fed’s actions are leading us into a recession… But the market is not paying attention at all.

And that’s not all. Corporate profits are almost certain to miss expectations by 10% to 20%.

All told, that means the S&P is likely to hit a new bottom of 3,000 to 3,400 – a 20% to 35% drop from here.

In other words, the S&P is extremely overvalued, and almost all the risk is to the downside.

And if a recession hits, it’ll be average investors who piled into this frenzy that will end up getting burned.

Source: Wide Moat Research

https://dailytradealert.com/2023/06/16/ ... the-story/

[winston]

S&P 500 Above 4,400 Leaves No Room for More Gains, Citigroup Says

Bank initiates 2024 mid-year target of 4,400 on US stock index

Firm admits it missed AI euphoria, but still wary of recession

By Alexandra Semenova

Source: Bloomberg

https://www.bloomberg.com/news/articles ... #xj4y7vzkg