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Sentiment Review - 13/07/2020

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  • Sentiment is positive, supportive for risky assets.
  • Economic recovery is still ongoing, US is still going to fight Covid-19.
  • Investors must invest cautiously.

US Equities had a positive week, they gained 1.74% despite the rising of Covid-19 cases in some major US states, namely Florida and Texas. As we can see from the following chart, the South/West regions are most hit:


What is interesting is the decreasing implied volatility in SPX options although the rising cases:


From a sentiment perspective, the market seems to be neutral at the moment as pointed out by Goldman Sachs:

Sentiment GS

At the same time, equity positions are still bearish, providing a buy signal. We stand along with this idea since such an indicator has been a good contrarian timing tool. 

DB SentimentThere are other two interesting indicators pointing to a bullish thesis. The first one is the insider activity by Thomson Reuters, which has fallen into bullish territory, while the second one is the AAII Bullish-Bearish sentiment report. The latter is at extreme levels if we look at the 12 weeks moving average. 

InsidersAAIIOn the other hand, it is noteworthy to show extreme activity in the options market. The Put/Call ratio 10 days moving average made a new low on Friday. This is usually a good indicator to spot market reversal, currently, we expect at least a minor correction. 

PCTo spot the bottom, the percentage of stocks above the 20 days moving average and 50 days moving average are the indicators to follow. On a 20 days basis, we stand between the mean and 1 standard deviation, slightly bullish, while on the 50 days, the sentiment is neutral. Once these two indicators provide a green signal it will be time to load on risky assets.

20d50dGiven the current setup, the Pulsar Research Team tends to be bullish with a bias on buying the dip given also the strong liquidity provided by central banks across the globe. 

Thank you 

Pulsar Research

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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