For today’s write up…I wanted to speak on where we are heading into the Summer.
Let’s start with something I’ve been warning of for the last few years. The use of the indices to measure market direction, health or analysis is becoming defunct. I’ve been noticing this over the years and have done my best to give members alternate ways to measure market direction, health and overall analysis that tells a deeper story.
Bottom line, the rotation into ETFs and Indexed products over the years has literally thrown everyone off an important underlying narrative. 2014 was the best example of this. The market crashed that year. Period. Worst year in terms of overall breadth in over two decades. You’d never know that because the bid under the SPY kept it in an uptrend, despite 70% of stocks being down more than 10-20% that year.
Why do I bring this up?
This week I tried to make opportunity out of select strategic buys – away from the market. Do I feel good about them? Of course.
But what about “the market” here?
I don’t like the jump in bullish sentiment. This was part of the trap I had been speaking of at the Q1 Boot Camp. I said “real market corrections and analysis will take hold based on sentiment extremes…such as big +/- in overall sentiment ratings, big monthly fund flows, etc.”
Over the last month, people consistently sold out of stocks while sentiment plummeted…and the market went nowhere.
Market pops this week, AAII sentiment jumps 12 points to the average of 38.5. Enough to potentially slow things down for the month of May.
This is almost verbatim of what I said at Boot Camp…a rally into May that gets everyone excited about NOT selling in May and going away. This market move forced people to jump back in at some higher prices too.
While I am skeptical of what the SPY will do, I am thrilled at what individual charts continue to do. Before I get to firm on what I think May ends up looking like…I want to see where fund flows are pointed May 1st. I also want to see how strong/weak money coming into equities is. That will tell us whether or not it will be a long summer.