Sentiment Contradicts Price Action

Sep 15, 2022

The S&P 500 may have fallen around 1.5% over the past week, but individual investors have reportedly become increasingly bullish.  26.1% of responses to the weekly AAII sentiment survey reported as bullish this week, up from a recent low of 18.1% last week. With the S&P 500’s worst day in since June 2020 and a hotter-than-expected CPI print occurring late in the response collection period (12:01 AM on Thursday through 11:59 PM Wednesday night), the timing of responses is a potential cause for the increase in optimism that was contrary to equities’ price action. In other words, responses that came in prior to Tuesday were likely far more bullish than those that came in afterward and therefore elevating the level of bullish sentiment.  As such, next week will be a more telling read on individual investor sentiment as it will more fully capture recent price action and inflation data.

While bulls rose back above a quarter of responses, bears fell back below 50%.  Bearish sentiment dropped to 46% which was only the lowest level since the week of August 24th.

Those moves meant the bull-bear spread rose 15.3 points week over week going from -35.2 up to -19.9.  That was the largest one-week jump in the reading since the end of June. However, that indicates sentiment remains heavily in favor of pessimism as the streak of negative readings grows to 24 weeks long; the second longest streak of negative readings on record.

The AAII survey was not alone in showing a rebound in sentiment. Both the Investors Intelligence survey and the NAAIM Exposure Index highlighted increased bullishness in the latest week’s data. As with the AAII survey, though, the collection periods likely did not fully capture the effects of Tuesday’s inflation data and historic one-day decline. Overall, the story remains that investors are remarkably bearish. Click here to learn more about Bespoke’s premium stock market research service.

Claims Avoid Seasonal Lows

Sep 15, 2022

The move lower in jobless claims pressed on this week as the seasonally adjusted reading dropped another 5K down to 213K in addition to last week’s reading being revised 4k lower to 218K.  That exceeded expectations which were calling for claims to rise up to 225K.  This week was the fifth consecutive decline in adjusted claims with a total drop of 39K in that span. That is the longest streak of declines since December of last year when claims had fallen for 11 weeks in a row as the end of pandemic era programs was approaching.

Although the continued decline in seasonally adjusted claims have not resulted in any sort of a new low, unadjusted claims are far more impressive. Taking a historical average of claims throughout the year, most of the time claims would have bottomed by now, but that is not the case this year.  Unadjusted claims have continued to fall over the past couple of weeks and are all the way down to 156K; the lowest level since October 1969.  That is not to say claims are completely bucking seasonal trends as the current week of the year has marked seasonal lows in years like 2009, 2010, 2015, and 2016. In other words, it is hard to distinguish how much of the continued decline is seasonal versus material improvement in claims, and regardless, claims remain at historically strong levels.

As for continuing claims, the latest reading for the week of September 2nd edged up modestly to 1.403 million. As with initial claims, continuing claims saw the previous week’s reading revised lower from 1.473 million to 1.401 million resulting in the latest print coming in well below estimates of 1.478 million.

Recently we have been highlighting the ratio between initial and continuing claims to highlight how the latter has generally been stronger than the former.  However, with initial claims falling for a fifth week in a row without a similar decline in continuing claims, the ratio of the two has been reversing lower and is approaching more normal levels.  In fact, the one-month change in the reading has been on the large size ranking in the bottom 3% of all moves on record. Click here to learn more about Bespoke’s premium stock market research service.

Big Gap Down Takes Out the 50-Day

Sep 14, 2022

Headed into Tuesday, the S&P 500 had been on a solid post-Labor Day rally, however, the hotter-than-expected CPI reading sent stocks reeling.  After gapping down below its 50-day moving average, the S&P 500 (SPY) finished the day with a decline of over 4%.  Additionally, another technical development of note as a result of yesterday’s move was that the breakout above the past few weeks’ downtrend line appears to have only been a pump fake.

While moves above or below the 50-DMA are a fairly common technical development, those similar to Tuesday are a bit rarer than might be expected at first glance.  Prior to yesterday, the S&P 500 ETF (SPY) had only opened below its 50-DMA thanks to a gap down of at least 2% four other times since the ETF began trading in 1993: April 8, 1996, April 27, 2000, June 24, 2016, and February 24th, 2020. Looking across each of these instances, the 2020 occurrence was the only one that was followed by a prolonged period with the SPY staying below its 50-day. By comparison, the 1996 and 2000 instances saw the S&P continue to fluctuate around its 50-day in the months ahead. In fact, the April 2000 occurrence actually saw the S&P 500 rise back above its 50-day by the end of that same day. Meanwhile, the 2016 instance saw SPY quickly regain its losses as it traded above its 50-DMA for much of the next few months. Click here to learn more about Bespoke’s premium stock market research service.