Weekly Sentiment

8/6/2019 Weekly Sentiment

1/21

Equities

Mutual fund flows once again experienced large outflows, which indicatesthat retail investors are panic selling. In the first three weeks of June wesaw the accumulated monthly outflow of $16.6 billion. That is the secondworst reading since the March 2009 market low and the monthly data hasnteven finished yet.

With so much fear out there within the retail investor crowd, contrariansshould not be surprised at the powerful rally equities have put in this week.

http://theshortsideoong.blogspot.com / 1
http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/


2/21

Retail investors (AAII) remain neutral, while newsletter advisors (II) andfund managers (NAAIM) remain quite bearish, despite the powerful rally wesaw this week. We do not yet know if the bull market top occurred at theFebruary and May tops, as sentiment was very bullish during those times.Looking at the current market action, probability favors new market highs.



3/21

Retail options traders remained more neutral this week, as the readingsmove towards the mean of the last five years. However, the recent binge ofput buying should put in a stock market bottom, at least in the short term.With so much put buying out there during June, contrarians should not besurprised at the powerful rally in equities this week.

Over the last 5 years, a huge jump in puts worked as a contrarian indicatorto trade a rally, every single occurrence apart from September 15th 2008 -when the Federal Reserve let Lehman Brothers go bust.



4/21

The Citigroup Economic Surprise Index shows that economists expectationstowards future high frequency data remains two standard deviations belowthe mean of the last seven years.

Despite conventional wisdom most retail investors tend to get out of risk-on assets, such as equities, when the economic news becomes worse thanexpected whereas contrarians should do the opposite by buying. The marketresponds more to how numbers post up against economists expectationsrather than the actual numbers themselves.



5/21

Looking at the statistics of the current bull market, we can see that thecurrent correction hasnt officially ended yet. This was ninth decline ofmore than 5%, since the bull market began on 09th of March 2009.

The average correction over the last two years and two months hasapproximately been 7.6%, taking almost 18 trading days to find a low.Comparing that to the current correction, shows us that while the marketdid decline 7.2%, which is close to the average, the correction actually tooktwice as long than we have averaged over the last couple of years.



6/21


7/21

This weeks move shows a sharp rise in the long rates (10 Year Note),compared to the much smaller move at the short end of the curve (2 YearNote).

US Treasury Yield Curve (2s10s) remains very steep, compared to the levelswe saw during 2000 as well as the 2006 - 2007 period, when the Yield Curvebecame inverted.



8/21

The Citigroup Economic Surprise Index shows that economists expectationstowards future high frequency data remains two standard deviations belowthe mean of the last seven years (discussed above).

Despite conventional wisdom most retail investors tend to get into safehaven assets, such as Treasuries, when the economic news becomes worsethan expected whereas contrarians should do the opposite by selling. Themarket responds more to how numbers post up against economistsexpectations rather than the actual numbers themselves.



9/21

During the recent correction, longer dated Treasury Bonds have rallied muchmore than the fall in the equity market. US CPI ination reading stands at3.6% over the last 12 months, while the 10 Year Note was yielding as low as

2.87% just one week ago, reecting negative real interest rates throughoutthe majority of the yield curve.

We saw a sharp reversals within both asset classes, where the 10 Year Noteyield jumped from 2.87% to 3.18%, while the S&P 500 jumped from 1,268towards 1,339 within a week.

The old stocks vs bonds debate continues between inationists anddeationists. It is my opinion that to justify buying long dated Treasuries here,you must be very bearish looking at a potential deation scenario in the USeconomy. Investors who are pessimistic and believe in this case scenarioshould also note that during this potential event, the Federal Reserve couldengage into QE3 thereby devaluing the currency even further. This wouldtherefore make Dollar dominated Treasuries even less attractive.



10/21

Commodities

The shakeout in the commodity bull market continues, as weak hands areforced to liquidate long positions due to the current correction. Speculatorscut bullish contracts on the overall commodity complex to the lowest levelsince early August 2010. The cumulative bullish contracts stand at about842,500, which is 44% lower than the 1,488,000 contracts recorded in earlyJanuary.

Commodities included within the Cumulative Futures Positions by CFTC inthe chart above are Corn, Wheat, Soybeans, Rice, Crude Oil, Gasoline,Heating Oil, Natural Gas, Lean Hogs, Live Cattle, Cotton, Cocoa, Sugar,

Coffee, Copper, Gold, Silver, Platinum and Palladium.



11/21

Speculators are cutting bullish bets on Corn, Cotton, Crude Oil, Copper andGold; while majority are now shorting Wheat which is now down almost 35%.



12/21

Speculators jumped back into the Silver market last week, thinking that theprice bottomed. Within the next three days, Silver lost another 7%.

This week, speculators reduced bullish bets on Silver again, to the lowestlevel since early 2009. Silver price itself keeps moving towards the magnetic200 day moving average line.

The correction within the bull market continues, and with prices down over30% - a buying opportunity could be coming soon. Patience is the key here,as parabolic moves take time to correct and consolidate.



13/21

After trading as much as 30% away from its 200 day moving average in lateApril, Crude Oil has endured a 20% correction in the last two months and iscurrently testing this psychological line.

The secular commodity bull market continues, so a long term investorshouldn t be too bearish on commodities, like crude oil, due to favorabledemand and supply fundamentals.



14/21

Currencies

Speculators reduces their bearish bets on the US Dollar this week. We arestill in an unwinding process since the inection point in early May. Obviously,

if the rally continues this is one of the major headwinds of the risk-on tradefor equities, commodities and high yielding currencies.



15/21

Speculators are cutting bullish bets on the Yen, Franc and Aussie; while theywere net short Canadian Dollar by Tuesday, resulting in the strong reversal!



16/21

During the last decade, the weakness in the US Dollar has resulted in astrengthening of equity and commodity prices. The rally into the US Dollarhas led to equity and commodity corrections or bear markets.

The trade weighted US Dollar is currently on the brink of breaking its 2008panic low. The two questions are:

1.) Will this be a bear trap which will turn into a potential US Dollar rally,sending commodities and currencies even lower from current levels; or...

2.) ...will the US Dollar keep moving lower and therefore resume its seculardowntrend, which started in early 2002?



17/21

While the US Dollar Index has been showing some strength as of late bybouncing of the 2008 lows, in an attempt to answer the above question; wecould look at my personal indices which track the commodity currencycomplex (CC Index) and the Asian export currency complex (AEC Index).

It seems that the weak Euro and Pound are masking the overall broad USDollar weakness and the indices above are potentially conrming a break

below the 2008 low.



18/21

Economy

The recent results from the Bank of Japan Tankan Business ConditionsSurvey showed a deterioration in condence. This is a perfect contrariansignal as it looks like the Nikkei 225 has nally put in a strong bottom around

the 9,300 level.



19/21

Global Economic Indicators (GEI) continue to show potential weakness asJobless Claims show a 4 week spike above 400,000. The ECRI is irting with

its moving average and German Business Condence remains at elevatedlevels. On a bright note: Dr. Kospi, Dr. Copper & the S&P 500 all currentlyremain above their trend lines and are in a primary bull market.



20/21

In Focus This Week


The focus this weekis on the equitymarket rally and thebearish views in theadvisors, economistand fund managerscamp.

S&P 500 put in quitea strong rally thisweek. As a matter offact, this was themost powerful oneweek advance inalmost two years,since July 2009.

T h e f o l l o w i n gcontrarian indicatorsremind us that weshould always be onthe opposite side ofexpert advisors,economists and fundmanagers.

T h e a m o u n t o f

newsletter advisorsthat remain bullishremains below 40%,which is a far cryfrom the 55% plusseen consistentlyduring late 2010 andearly 2011.

Economists have alsoturned pessimistic,some of which arecalling for a doubledip recession. This is

completely oppositet o t h e s t r o n gconviction they heldtowards economicgrowth in February2011.

F i n a l l y , f u n dmanagers have thel e a s t a m o u n t o fexposure to equitiess ince Ju ly 2010 ,which was the lasttime S&P 500 put in a

strong bottom.


21/21

Publication Information

The information, opinions, and material displayed and presented on the http://theshortsideoong.blogspot.com / blogwebsite and in this weekly sentiment newsletter are provided for informational purposes only and are not to be used asor considered an offer or a solicitation to sell or buy securities, investment products, or other nancial instruments, nor toconstitute any advice or recommendation with respect to such securities, investment products, or other nancialinstruments. The information, opinions, and material displayed and presented by The Short Side Of Long blog areprepared for free use without regard to the specic investment objectives, nancial situation, and particular needs of anyindividual person or corporate entity who may receive or view this information. Before making any investments orentering into any transaction in relation to any securities mentioned or referenced by The Short Side Of Long, you agreeto independently evaluate an investment and/or consult an independent nancial adviser who is licensed and registeredin both the jurisdiction where you reside and the jurisdiction in which said securities are being offered.

The information and data included in this newsletter and on the http://theshortsideoong.blogspot.com / blog websitehave been compiled from a variety of sources and are subject to change without notice. The Short Side Of Long blog

makes no warranties or representations whatsoever regarding the quality, content, completeness, or adequacy of suchinformation and data. If misleading, inaccurate or otherwise inappropriate information is brought to our attention, areasonable effort will be made to x or remove it. Please contact us at [email protected] with any concerns.

By using this newsletter or visiting out blog at http://theshortsideoong.blogspot.com , you assume all risks associatedwith the use of this site and publication including any risk to your computer, software or data being damaged by anyvirus, software, or any other le that might be transmitted or activated via our blog web page or your access to it. TheShort Side Of Long shall not be liable for any damages of any kind resulting from the use or misuse of the informationcontained in our web pages and publication. The views and opinions of authors expressed herein do not necessarilystate or reect those of The Short Side Of Long blog, and shall not be used for advertising or product endorsementpurposes.
http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/http://theshortsideoflong.blogspot.com/

Documents

Weekly Sentiment