Sentiment Review - 20/07/2020
Seeking Alpha Analyst Since 2020
Team of four people focused on Macro Investing.
We publish a monthly review of markets along with our quarterly outlook with specific suggestions for investors/traders. On a weekly basis, we publish a sentiment analysis of markets.
Our approach is based on liquidity, sentiment, and leading indicators.
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Pulsar Research Team
Summary
- Sentiment is still positive but some indicators are flashing red signals.
- Still bullish consolidated positioning in equities.
- Momentum seems fading, hedge the downside.
The S&P500 had a rough volatile week with the price going sideways for a couple of days, investors were scared by the rapid number of Covid cases as well as the doubt about the recovery fund in Europe. This benefited gold which is going almost parabolic along with silver, we believe both are going to face a correction soon and it will be time to load on some more. Moreover, earnings season kicked off last week, our favorite earnings release is Tesla which may be introduced into the S&P500 and a lot of traders/investors are already frontrunning the buying pressure ETFs will cause.
From a sentiment point of view, some forecasts are positive on the development of Covid cases but a lot of uncertainty surrounds these reports as you can see from the following chart:
This uncertainty is not seen in the Put/Call Ratio activity which made a new low, reaching 0.41 on the 13th of July. This is one of the indicators flashing red, and it is doing it for a while.
The other negative note comes from Advisers who turned very bullish last week pushing the index over 3, usually a "euphoria" signal.
The same happened with the Insiders Transactions Ratio. We tend to follow closely this index since it tracks managers with insider information and they can give us a clue on their outlook for stocks.
On the other hand, consolidated equity positions are still favorable for stocks as shown from Deutsche Bank:
We do think there is going to be a catch up for equities since funds have started moving toward equities rather than bonds. At the same time, on a technical basis, the money flow is not supportive of an upside move, on the contrary looks bearish.
As the last point, our top/bottom indicators have reached the 1 standard deviation threshold warning us of possible negative price movements.
Pulsar Research view is that there is a common sense that a stock correction may happen soon since many stocks recovered fastly from the drop in March, especially the Techs, and we agree on this view. Although at the same time, the narrative is "too" consensus, therefore we like to be partly contrarian, our bullish view is maintained, but with a hedge for an eventual downside.
Pulsar Research Team
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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