The U.S. inventory market’s rally is almost definitely a counter-trend advance inside a longer-term downtrend. That’s the conclusion I reached after analyzing how shortly many on Wall Street have turned bullish in current days. The hallmark of a extra sustainable advance is one that originally is met with widespread skepticism, however that hasn’t been the case now.
Consider how inventory market timers usually react to a six-session rally; that’s what number of buying and selling periods there have been for the reason that market’s Oct. 3 low; since then the S&P 500
has gained 3.5% (by Oct. 11) whereas the Nasdaq Composite
is 4.6% increased. By analyzing all different six-day rallies of comparable magnitude during the last twenty years, we are able to mission how they “should” have reacted this time round.
In truth, the typical market timer has turned way more bullish than this two-decade evaluation would lead us to anticipate. Consider first the typical publicity stage of inventory market timers who deal with the broad inventory market. (This common is represented by the Hulbert Stock Newsletter Sentiment Index, or HSNSI.)
This common has jumped an astonishing 35.6 share factors since Oct. 3, virtually 4 instances the 9.8 share level HSNSI improve that twenty years of market historical past would lead us to anticipate from a 3.5% S&P 500 rally.
The same story is instructed by the opposite fairness sentiment index that my agency constructs, which focuses on fairness publicity ranges amongst Nasdaq-focused inventory market timers specifically. (The common of those publicity ranges is represented by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI.)
This common has soared 34.1 share factors since Oct. 3 — practically double the 17.4 share level improve that historical past would counsel within the wake of the Nasdaq Composite gaining 4.6%.
To put the market timers’ giddiness in context, contemplate how they reacted within the first six buying and selling days of the bull market that started a yr in the past, on Oct. 12, 2022. The Nasdaq Composite rose 6.1% over that six-day interval, versus its 4.6% improve over the more moderen six buying and selling periods, however the HNNSI a yr in the past rose far much less — 13.3 share factors, in distinction to 34.1 share factors since this Oct. 3.
This is an enormous cause why contrarian traders aren’t anticipating a lot from the present rally.
Mark Hulbert is a daily contributor to MarketWatch. His Hulbert Ratings tracks funding newsletters that pay a flat charge to be audited. He could be reached at email@example.com
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