NFTRH Update; Market Bounce Implications

The futures are bouncing and this comes right from the literal last ditch technical point as shown in yesterday morning’s update edits.  There was literally no lower that the indexes could fall without violating all previous lows.  Talk about a market that pushes the limits.

I ended up covering one of my two remaining shorts (against IWM) and then shorted the 3X short fund, SPXS (i.e. went 3X long for a small position).

While the technical charts look awful on most stock market indexes, the sentiment backdrop, combined with critical support (flimsy though it is) implies a bounce.  It could be a fairly strong one if bulls get a bit in their mouth, considering the sentiment backdrop.  From Sentimentrader

Smart/Dumb money is not as extreme as last August, so once again we have a small hint that any coming bounce would not be as long or strong as the post-September recovery.

smart and dumb money

Pessimism is climbing but not spiking, and is below the August/September levels.

optimism and pessimism

As for sectors, look who is the most bearish from a contrarian sentiment standpoint.  Look who is the most bullish.  Sentiment is not a timer, it is a condition.  So, considering critical support on the major indexes, preferred sectors can be looked at for quick trades.  As for the gold miners, everybody’s got the bullish memo and a reaction will come.  We will manage pullbacks accordingly as usual, although now with a view that the odds a bull market has begun have increased.

sector optix

Stocks vs. bonds are now favorable from a ratio perspective.

stocks bonds

Bounce levels on the broad market remain the same, the noted lateral resistance and/or the now declining EMA 50’s.

wlsh, us broad market

As for SPX, the character of markets has changed.  In recent years all policy makers had to do was put a well aimed jawbone on the market and it would respond positively.  Beginning last year the efficacy of these actions began to fade as the market lost momentum.  This year, the market seems to give them the finger and just keep dropping.

spx weekly chart

Everybody is angry at Yellen, confidence is draining daily and the S&P 500 is right at critical support.  Put it this way, if it is going to bounce (rather than firmly load the 1500 to 1560 target) it is going to do it from this very point.  The best bounce target on SPX remains 2000 (+/-).  There will be some interim resistance at around 1880-1900 as well.

Among the sectors that can bounce are energy (oil is getting hype from OPEC this morning), healthcare and banking.  Vulnerable sectors are the ones that have worked in the risk ‘off’ phase to date, gold and Treasury Bonds (TLT is close to the NFTRH+ target around 136).

The macro has changed over the last month or so.   For fundamental reasons (perhaps temporarily mitigated to a degree by a market bounce scenario) it is time to view gold and gold stocks in a much more positive light.  But with CNBC ‘traders’ all blabbing about gold and the miners last night, you cannot get a better contrary indicator.  Those who have been clamoring to get in will probably get more chances on pullbacks.