Investors Remain Highly Emotional
Relax and follow the indicators, rather than news reports.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
I had an interesting experience with sentiment and narratives this weekend that I would like to share with you. I have already expressed to you how terrible I am with narratives. I also try my best to ignore the news, especially when we are in a volatile market.
Each Saturday morning, I do a poll on Twitter (it will always be Twitter to me), as I have for the last five years, asking what the next 100 points in the S&P will be. Most weeks, some folks, who for some reason think I also need their commentary, not just their click of up or down, chime in with their comments.
However, this weekend, minutes after I posted the poll (the poll goes up the exact same hours each week: 7 am to 1 pm EST), one of the news services tweeted out that the Chinese delegation had left the trade talks in Switzerland. The replies to my poll felt like folks were screaming at me, saying, of course it’s DOWN! Even the voting reflected this so-called news, with a mere 35% looking for the next 100 points to be up rather than down.
Folks sent me screenshots of the betting markets, showing the S&P already down over a hundred points. I was practically bombarded with this.
An hour or so later, the news services tweeted out that the two delegations were back at the table, having taken a lunch break. While I did not get bombarded with commentary after that as I did earlier in the morning, I did see a marked shift in the voting as we ended with 47% looking for up while 53% were down. Curiously, it was the same exact polling we had the prior weekend.
This experience is exactly why reacting to the news is not helpful in my view. It is why I choose to focus on the indicators. However, one thing did come to mind from this experience: the market is still highly emotional right now, and there is no way we can say it is complacent. I would characterize it as hopeful.
There is an old expression in the market: buy at the sound of cannons, sell at the sound of trumpets. Some of you may recognize the latter part of the expression as ‘sell the news’.
I have noted that I think we are currently in a chop-fest (last week surely looked like one as most indexes and stocks marked time). I have also noted that I think after we work this short-term overbought condition off, I think we should have another rally attempt. That is typically when we see if the indicators are rolling over or not.
We have already seen the Nasdaq Hi-Lo Indicator roll over, but not the NYSE. We have already seen the options players place their bets as the ten-day moving average of the put/call ratio has sunk under .85. And last week, we witnessed a false breakout in the Utes.
There are signs that once we get to an intermediate-term overbought condition (the week before Memorial Day), we will see less hopefulness and more complacency. Maybe we’ll even see a ‘sell the news’ event. But, I will focus on the indicators and not the narrative. Narratives just mess with your head.
