This is going to be a quick n’ dirty blog – hopefully it helps. Before getting to the meat of it – for those who don’t already, please consider subscribing to our newsletter. True, sometimes we repeat content form this blog on it, but other times like today, we spit out some new thoughts on markets. The newsletter is an abbreviated version of what our clients get–the only exception being that it eliminates specific stock updates from our holdings.
Anyhow– a reader asked me to update the Bear-o-meter. Today seems like just the day to do it. I can’t post all of the data or charts, but its pretty amazing to see the extent of fear and panic in the markets at this juncture. I’ll highlight what’s happened.
Ok, to start, the Bear-o-meter still sits at 7/8, just as it was 2 weeks ago. I expected an 8/8, but the compilation does need the SPX over the 200 day SMA in conjunction with oversold levels to justify that high score. Clearly, that’s not the case right now!
What’s really interesting is the extent of the bearish sentiment. Recall that the indicators I use are often contrarian. Not so much with breadth or trend, but things like put/call, Smart/Dumb money confidence, and breadth momentum. And boy, are these indicators buried deeply in capitulation readings.
Just a few highlights:
VIX was 69 this morning. Anything over 35 is considered bullish (too much fear). We very briefly saw 90 right at the bottom of the bottom in March 2009. That was a very brief capitulation spike marking the day of the turnaround. We could wash out to that level in no time at all, but its now a longer shot to see too much more downside.
The % of stocks on the SPX over their 50 day SMA is now only 3.4%. That is as low as I’ve seen it. And its a sign of an oversold market – to put it mildly.
The biggest standout was the NYSE New High/ New low indicator. Brace yourself. Its showing 22 times more stocks have made new lows vs new highs on the entire market. My historic research suggests anywhere over twice as many new lows is an oversold buy signal.
SPX trailing PE ratio is finally “normal” at around 20. Its been well over 23 for too many years. The market is subject to earnings falling in this mess, but there’s some room for that in the current PE and still be considered a fair valuation.
Conclusion
We’re seeing more signs of outright capitulation. These conditions don’t last. I cant call today or any other day as “the bottom”. But I can tell you that we’re damn well getting there!
8 Comments
I know people always say “this time it’s different”…however, maybe the Coronavirus does put a different spin on things, given that it is a huge unknown? I have been picking away at a few Canadian dividend stocks and some index ETF’s, but I feel like I’m still too early. I have a bit of cash on the sidelines still. I don’t want to miss the rally sitting in cash, but I think we are not at the bottom yet. Isn’t 2450 on the S&P big Technical thingie (hard to tell I’m not a Technical Analyst???). If we go below this level, isn’t there a huge downside risk? Thank you for your thoughts! I enjoyed seeing your presentation at the Guelph share Club a few weeks ago.
Thanks Claudia–really liked the Guelph group. I’ll post a blog monday with some technical levels and thoughts.
Deeeeeeeeeeeeeeeeeeeeeeeeeeep Breath!!
Love it!
Thank you Keith,
You leave the emotion out of this and we all appreaciate your level thinking.
I agree all signals say buy…..as you outlined, and nobody can predict a bottom.
What still concerns me is the testing in the U.S of this virus has not revealed the real numbers of the people infected as they only have tested 10,000 people so far…..the numbers in the U.S will rise dramatically as the world numbers have increased. 7000 new cases within 24 hours world wide that’s a 14% increase…..Factories in the U.S will begin to shut down due to employees having the virus.
I still do not believe we have reached ‘capitulation’ on the equity markets……and, the big players on Wall Street would love to bring the S&P500 index even lower, so they can scoop up more shares for cheaper….I think the S&P500 will go between 1800-1900 before all is said and done.
…..nobody knows, as you said it’s coing toss.
Too bad the Fed didn’t take that 1.5 Trillion and put it towards the hopitals in the U.S rather than trying to artificially prop up the markets, as they have been for the last 11 years.
More bailouts coming…..on the backs of taxpayers.
Thanks Ray
Not sure if you are in the USA–but if you are you may not be aware that our guy promised infrastructure spending when he was first elected (Canadian medicare is longest waiting times in the developed world). Even fiscal stimulus like the USA would have been better than our guys plan–which was to increase taxes on income and fuel, then take that money and NOT spend it on infrastructure as promised. Instead, sending it to Africa and private corporations like Bombardier and Loblaws and special interest groups. All in the name of securing votes – not to stimulate.
The Schiller P/e is 25 as of Friday with a mean of 16. This sure looked like the low with trumps speech on friday
Reasons this isn’t a buying opportunity and can get worse:
– signs of distress in the financial system, FRA OIS spread for starters
– credit market volatility has been awakened and it is not happy. high yield and investment grade bonds are MOVEing
– even treasury market volatility is at levels comparable to 08
– sp500 earnings growth was already slowing and will continue to slow at a faster rate due to the virus
– market expectations for inflation on 5y and 10y time horizons have tanked and indicate something that is not transient
– DXY is crushing currencies left and right, except for funding currencies that get bid when risk exposure is unwound (yen, eur) and safe havens like swiss. global margin call, got dollars?
Bob