The AAII weekly sentiment survey remains biased towards a bearish outlook this week, though, bullish sentiment saw a small increase.  24.79% of respondents reported bullish sentiment this week.  This small increase was not enough to bring it back into its historical range as it is still over 1 standard deviation from the historical average as shown in the second chart below. As we highlighted last week, these more extreme readings can actually be taken as a good sign for equities, but that is looking at when bearish and neutral remain in their normal ranges. That is no longer the case this week. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Similar to the bulls, bearish sentiment has risen to an extreme this week. That is the first time that bearish sentiment is at an extreme high while bullish is also at an extreme low since late December 2018. This week’s increase up to 40.08% brings bearish sentiment around 10 percentage points above the historical average. Bearish sentiment has increased at a very rapid pace in May, rising over 18 percentage points over the course of the month.  While bearish sentiment had risen to much higher levels through the sell-off in Q4 of last year,  the most it rose in a four-week span was 12.91 percentage points. The last time there was as large of an increase in a month was in April of last year, when it rose from 28.49% on March 22nd to 42.75% on April 12th; a 21.42 percentage point move.

Bulls and bears borrowed entirely for the neutral camp as the percentage of investors reporting neutral sentiment fell around 4% to 35.12%. Neutral sentiment continues to be high relative to where it has been historically, but it has also come down considerably from multiyear highs reached earlier in the year.

This week’s release of Initial Jobless Claims from the U.S. Department of Labor was pretty uneventful as the seasonally adjusted data was in line with expectations at 215K.  That is a slight rise from the upwardly revised 212K (originally 211K) last week. That revision means that claims for last week had been unchanged from the prior release.  In the past couple months, the seasonally adjusted numbers have seen this sort of pattern before.  In the final weeks of April, claims came in at their recent high of 230K two weeks in a row. This was followed by a 2K lower reading of 228K. The weeks since have basically mirrored this with the aforementioned two consecutive weeks of a print of 212K and now this week’s 3K rise to 215K.  Keeping steady like this, claims have remained below 250K for 72 weeks now, and have been below 300K for 221 weeks now.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

As the previously mentioned highs from late April have continued to roll off, the four-week moving average has fallen for its second straight week down to 216.75K from 220.3K last week.  Like the seasonally adjusted level data, the four-week moving average now sits in the middle of its recent highs and lows. This means that this week’s reading continues to not indicate any sort of new direction for the data, rather, it is showing labor data is simply holding up at healthy levels.

The non-seasonally adjusted number rose to 196.1K compared to 191.3K last week.  That rise is typical for the current week of the year. As shown in the chart below, over the next several weeks of the year headed into the summer months, the data has usually seen a seasonal uptick. Given this and in spite of the rise, this week’s reading is still indicating a healthy labor market as it remains below levels from last year and all prior years of the current cycle.  It is also still well below the average for the week of the year going back to 2000.

Further declines this week have continued to push the major index ETFs deeper into oversold territory. Currently half of the major index ETFs are sitting over 2 standard deviations below the 50-DMA; what we consider to be extremely oversold.  While the rest of these ETFs are not yet at extreme levels, they are on the cusp of joining their peers.  This push deep into oversold territory has been pretty rapid as evident by the long tails to the right in the Trading Range section of our Trend Analyzer. This time last week, these ETFs were just barely oversold or neutral.  Some, like the S&P 500 (SPY) and Nasdaq (QQQ), were actually right near the 50-DMA.  As this group has fallen into oversold territory, small and mid caps have led the way lower.  The Core S&P 500 Small-Cap (IJR) is currently down the most with a 3.8% decline while the others are not far behind all down over 3%.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Below is an updated look at the S&P 500’s trading range chart over the last year.  After just barely making a new 52-week high in April, it has been all downhill since, with the index currently trading in extreme oversold territory at two standard deviations below its 50-day moving average.  Yesterday’s declines caused more technical damage when the index broke below its lows from a few weeks ago.  Right now the bears have control and the onus is on the bulls to break the short-term downtrend that’s in place.

The defensive areas of the market like Consumer Staples and Utilities had been holding up well up until this week, but even these non-cyclicals have started to experience significant selling.  The declines for defensives have left every single S&P 500 sector with less than 50% of its stocks above their 50-day moving averages.  As shown below, just 28% of S&P 500 stocks and 3% of those in the Energy sector are above their 50-DMAs.  The largest sector of the market — Technology — currently has a very weak reading of just 25% as well.  Start a two-week free trial to one of Bespoke’s three premium membership levels.