Is a stock crash coming? Are we about to start a bear market? Find out in this video.
The selloff that we were expecting due to the jump higher in rates, came. Though the move was a bit stronger than what we were looking for. The next significant resistance levels on the SPX are at the 2825 (100dma + trendline area) and 2875 (near the 50dma).
Macro fundamentals remain supportive of the broader trend higher in stocks. Financial conditions are the loosest they’ve been all cycle. And earnings here in the US continue to be strong. So far this quarter, 41 companies in the S&P have reported with 88% beating expectations on earnings and 71% on revenues.
Indicators of sentiment and positioning are broadly supportive of a higher trend in stocks as well, with only a few minor exceptions. The latest BofAML FMS survey for the month of October just came out. The report shows that fund managers continue to be bearish on the macro outlook for stocks and hold large amounts of cash.
Bull market tops are built on excessive bullishness and risk-taking. Leveraging risk assets is what sets the conditions for a prolonged bear market because of the forced sellers it creates. Investors continue to hate this bull market due to the disaster echo effects from the last crisis. This continues to be bullish for stocks.
Advisor’s bullishness has fallen to 56 from its high of 61 last month. Any reading above 60 should be taken as a signal to be cautious. Ideally, I would have liked to see this indicator drop more in response to the recent selloff and the fact that it hasn’t, tells me that there’s a decent chance this bout of volatility isn’t quite over.
To learn more, make sure you watch the video above!
And as always, stay Fallible out there investors!