Where are we? At the edge of a cliff, or the foot of a mountain?

In the weekend summary, we pointed out that the McClellan summation index RSI was poised to turn back up while still above 30, like it did at the start of the November recovery, and that is what it did on Monday. This increases the odds that we are at the foot of a mountain (chart below).

Equal weight (RSP) is outperforming the SPX. This demonstrates widespread, underlying strength in the market. It is still early in the recovery…compare the patterns with 2009–2010.

Fund Flows

The wild ride in the stock market during 2020 has served to underline and support our working hypothesis — fund flows and fear drives the stock market. The market is not driven by news, even news of a once-in-one-hundred-years pandemic. News, whether financial or Geopolitical, can temporarily “jiggle” the market, but it does not drive its primary trend. And the market is not driven by the economy either, even if the economy shrinks by 33% almost overnight. …

Minimums in the nominal weekly put:call ratio when associated with a down-spike in the 10-day MA, correspond to tops in the SPX 80%.

ANG Traders

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By David Huston and ANG Traders

The most over-traded stock in early 2020 was Tesla, which shot up 125% in the first six-weeks of the year, fell 62% during the pandemic shutdown, then climbed 468% by the end of September. While Tesla has more substance than “tulips” or “Beanie Babies,” the continuation of its meteoric rise can be reasonably questioned. Even if Tesla represents the future of electric vehicles, much of that future has already been accounted for in its current stock price. …

It is, of course, too early to call the election, but not too early to consider the economic effects of having a democratic president, especially when the majority rhetoric among those in the investing community — who should know the historical facts, but speak as if they don’t — is predicting economic and stock market doom should Trump lose the election. In this piece, we show that the facts say otherwise.

The Congressional Joint Economic Committee of 2016 (read full report here) showed that GDP grew, on average, 1.6 times faster under Democrats than under Republicans (chart below).

Source: Joint…

With all the digital ink being spilled over the “problems” with breadth not confirming the V-shaped recovery, we thought we would show how wrong that analysis is.

When we looked at the advance-decline line in ratio to the SPX, price we saw that in both the 2000–02 and 2008 bear markets the ratio dropped significantly, which means that the advance-decline line did worse than the SPX price, but in the virus-induced pullback the ratio increased, which means that the advance-decline line did better than the SPX price; positive breadth even as the price collapsed.

This confirms the veracity of the quick recovery in the SPX (chart below).

ANG Traders

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Except for 2018, pullbacks since 2008 have made two down-spikes in the SPX and corresponding up-spikes in the high yield spread. We may be experiencing the second set of spikes now with the current pullback.

The 10y rate moves directly with the unemployment rate, and the SPX moves inversely to the unemployment rate. Major bottoms in the SPX (vertical red lines) correspond with the top of the unemployment rate. Since unemployment is unlikely to increase much further, it is reasonable that the low for the SPX is in already.

There are a number of methods that are commonly used to measure fear in the market. Here we look at the AAII survey and the total put-to-call ratio.

The American Association of Individual Investors (AAII) weekly survey asks respondents whether they think the market will be higher, lower, or unchanged in six months time. Historically, spikes above 50% bullish sentiment, and bearish sentiment below 30% have correlated with highs in the S&P 500, and bear sentiment greater than 30%, and bull sentiment less than 25% correlates with market lows. The latest survey shows 23% bullish, and 50% bearish sentiment. …


The world needs dollars, and the Fed is creating them. Stocks have no business being up here. They are here because the stock market is not the economy, and even though the economy is the scaffolding for the market, and eventually the stock market lines-up with the economic scaffolding, emotion often takes the stock market for a joy-ride, or a hell-ride.

The positive sentiment goosing the market higher is coming from two sources: the belief that all those dollars that the Fed is creating will come to the market for yield, and even more optimistically that the Fed at some…

ANG Traders

Forty years of private equity trading, and still learning.

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