I’m going to devote some serious time next week in my 3-part free webinar training workshop to ‘Gauging Market Sentiment.”
I should quote the latest work from FatPitch.
While actionable and quality information in or about the market is at an all time low, proper sentiment analysis and how I gauge chemistry of the market has been the most reliable guide I used to guarantee in the fall of 2015 that we’d trade to all time highs.
It’s a ‘group-think’ position to be on the sidelines here, and this isn’t how markets crash. Rather, this is how they melt higher.
A tailwind for this rally has been the bearish positioning of investors, with fund managers’ cash in February at the highest level since 2001. Similarly, their equity allocations in February had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.
Remarkably, allocations to cash in September are as high as in February and allocations to equities are now even lower. Investors have jumped into the safety of bonds, with allocations rising to a 3 1/2 year high in June and July. Overall, fund managers’ defensive positioning supports higher equity prices in the month(s) ahead.
Allocations to US equities had been near 8-year lows over the past year and half, during which the US outperformed most of the world. After rising the past two months, allocations fell again to underweight in September. Bearish sentiment remains a tailwind for US equities. European equity markets, which had been the consensus overweight and also the world’s worst performing region, are now underweighted relative to their long term mean. Investors are chasing the world’s best performing region – emerging markets – which now have their highest overweight in 3 1/2 years.
This chart tells you we are bottoming, even though we are at all time highs. Let that sink in…
I respect the decision to wait it out and buy back in at the highs. If it weren’t for that, I wouldn’t have mapped this all out as well as I did last year when I said a big chase would be set off.
To take this a step further, I’ll take my most recent trade positioned around a very “one-sided” opinion that market participants had about Apple. I literally couldn’t find one optimistic opinion on $AAPL into earnings this last quarter. I bought a ton of calls ahead of earnings…
When the calls above were closed, I rolled out to a second position which was held to the ultimate price target of $109.
Naturally, the stock ripped higher. I didn’t start getting asked about $AAPL as a long til we got to the $108-$110 area, which is where I booked gains on my earnings trades. Going into their iphone event a couple weeks ago, everyone wanted to buy $AAPL into the event. Naturally, $AAPL sells off post event like it normally does. I waited until I stumbled across my first bearish comment here about $AAPL going “much lower.” That first comment I read came on the 8th. I loaded up on some calls there, and now $AAPL is angry. It’s seeking revenge on those that own too little. In fact, I posted that alert on Facebook the other day…
Here’s a 10 year chart. The trend is already underway. This pattern in Apple has worked in nearly every stock, sector and industry we’ve found this year.
Sentiment, working patterns, and ideas similar to this that I am stalking into year end will be covered in next weeks FREE webinar series. Literally, you can’t afford to miss it.
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