Commentary: Paul Ebeling on Wall Street


FLASH: Last week we saw Wall Street stocks and Gold rally hard finishing solid on Quad Witching on the Fed’s Dovish policy position declared Wednesday afternoon.

We are in the 2nd longest Bull Market in history that began precisely at 1:00p ET on 9 March 2009, and according to Merrill’s survey of managed money appears fragile and too long in the tooth. As some Key Wall Street analysts are saying that investors are now the most Bearish on the market since the Real Estate collapse in Y 2008 that was engineered by the Fed and the Hussein Obama Admin.

Merrill Lynch sent out a note saying that money managers that run over $525-B in assets shows that cash levels have been raised to the highest marks since Y 2011, and that allocations to stocks have seen the 2nd biggest decliner recently in history.

Merrill notes that combined with forward multiples that are above historical norms is generating nervousness in many investors. Other’s do not agree however.

The FANNGs which include Facebook, Amazon, Netflix and Google have driven market performance for too many years, and this year tech is up 22% Vs the S&P 500’s 17.7%.

The Merrill note cited some Key reasons for the reported Bearishness: The on-going trade disputes, the potential for a recession (which we do not see), which the inversion in the US Treasuries yield curve might indicate, and concern over dovish domestic monetary policy. Savvy investors know that Wall Street like easy money.

This weekend we have the G-20 Summit in Japan, and Presidents Trump and Xi may well talk trade issues, and make some progress toward resolution, there is investor certainty in this but no matter which way it goes Made in the USA will be the winner, and that is good for American businesses and consumers.

Merrill notes that its fund managers survey allocation implies recessionary conditions and that “Investors are overweight assets that outperform when interest rates and earnings fall and underweight those positively correlated to rising growth and inflation.”

The Merrill report pointed to the rally in the T-Bond market, which many investors considered a safe haven. Yields have fallen to 2 year lows and many are saying that the Treasury trade is the most crowded trade on The Street now.

The survey was taken between 7 – 13 June showed a rotation into other defensive areas like fixed income, cash, utilities and staples and away from banking, technology and EU area stocks.

The surveyed managers expect the Fed to cut interest rates, and while they did not last week there is the likelihood that the FOMC will at the next meeting in July, and.or September.

The fund managers surveyed have valid concerns as the market’s valuations, and we are definitely in the late-cycle economically, and for the stock market. And that, of course, The Trump Trade & Tariff issues will remain in focus until an agreement is reached.

Iran continues it bellicose chirping in the Middle East, and the BREXIT issue in the UK are also of concern, but the market is ignoring them now.

We are not in a Presidential election cycle, and until November Y 2020, and regardless of which party you like, it is another item that weighs on investor sentiment.

HeffX-LTN’s overall technical out look for the major US stock market indexes is Neutral, with our Key indicators flashing Very Bullish as of Friday, 21 June 2019.

Remember, it is your money so, your responsibility, pay attention.

The Bulls Vs The Bears

Sentiment Indicators

VIX: 16.30; +0.37 
VXN: 19.93; -0.39 
VXO: 17.39; +0.40 

Put/Call Ratio (PCR)

 When it comes to the put/call ratios, which are much more sensitive and therefore encompass the day-to-day trading, we see a bit more acceptance of the rally.

For example, the put/call ratio for exchange-traded funds last Wednesday was 99%, the lowest reading in about 2 months. We shrugged at that. But with Thursday’s reading of 70%, I can say that there is a shift taking place showing that investors are not fighting the rally as much as they were.

The 10-Day MA of the put/call ratio slipped to 89%. Once it gets under 90%, I call it acceptance of the rally. My guess is it goes lower before it starts to bottom, it no longer shows people are too Bearish.

The Bulls Vs The Bears 

As of last Thursday, only 29.51% of retail investors were Bullish. This is the 6th consecutive reading below 30%, and the 6th consecutive week with more Bearish than Bullish investors. And the indexes are at above or approaching all time highs.

There has never before been a time in the 21st Century where the Bears outnumber Bulls when the S&P 500 is at an all-time high.

Although there are good reasons to expect higher prices ahead, but I caution against being too Bullish in here.

In the short term, the S&P 500 is overbought and due for a healthy pullback getting ready for new money coming in July.

So, if you are waiting to join in on a pull back I see S&P 500 2870 as a good point.

Support and Resistance

HeffX-LTN’s overall technical outlook for Wall Street’s major US stock market from the support and resistance perspective is Neutral in here, as all of our Key indicators are now flashing Very Bullish

Have a terrific week