The day after the FOMC announced the end of its third round of quantitative easing stocks advance. Early morning futures digested better than expected GDP reading. Futures did not get all that excited over the GDP figure as it appeared it was government spending giving the boost to the economy. What really got the market going was a headline regarding Japanese market and algos went nuts. NYSE and CBOE experienced issues publishing quotes and trades. Since the October low this rally has experienced many of these glitches as HFT algos flood the market with orders. It does make you wonder. We are getting more and more long signals. Trading on opinion here in either direction is quite dangerous. As we get signals we will act accordingly. The trend is up and we are simply following it.
CNBC likes to parade market experts daily to tell you a nice bedtime story regarding the market. Every once in a while they will call upon Peter Schiff so they can make fun of a bear. It is funny as he and Ron Paul were the only two sounding the alarm in 2005, 2006, and 2007 regarding the housing market. Will he be right again is quite possible, but timing is always a wild card. Bear markets typically occur after rates have pushed higher. Just look at 2004 through 2007 where rates moved higher. We did not immediately fall apart when rates went higher, but after a slow move higher we finally saw a deep bear market. Without rates rising any time soon a bear market is highly unlikely. It does not preclude us from a mild correction. We will ignore the so called experts and push forward with our methodology.
Sentiment has quickly pushed back to being bullish. While the AAII survey never flinched we did see the II survey and NAAIM Exposure Index sink too rapidly. II survey bulls ticked higher to 47% and bears remained in the teens at 16.3%. II bears have not been above 20% in quite some time. AAII Bulls ended the week at 49% and bears ticked lower at 21%. NAAIM exposure index moved higher to 74% with bearish bets coming off. What is interesting is the NYSE Short Ratio taking a dive as of late. The ratio hit a high in the summer of 26%. It sits just at 19% and moving lower. We are back to where we were in September in terms of sentiment and many are expecting this market to continue to push higher.
This market still needs to work sideways to shake off this overbought condition it is in. Almost all indicators are now back in overbought territory. A few days’ worth of the market heading sideways would be very helpful for this market to push higher. Stick with the game plan and have a safe Halloween and great weekend.
