Despite continuing signs of weakness in the economy and an uninspiring earnings season for equities investors remain very optimistic. According to the HNNSI(Hulbert NASDAQ Newsletter Sentiment Index)stock optimism now stands near its highest level(81%)in years.
Key Bit: The HNNSI is the Hulbert Financial Digest’s most sensitive barometer of investor sentiment. This average currently stands at 81.3%, which is one of its highest readings in years. As you can see from the chart above, the stock market has declined over the past 18 months whenever the HNNSI rose to current levels. Note carefully, furthermore, that those declines were sometimes severe, except for when the market timers quickly turned bearish and thereby created a sentiment safety net that limited the decline.
The Dow Jones Transportation Index closed well below major support today. On Friday the Index fell below $8,500.00 for the first time this year but, with the long weekend ahead, volume was very light and the daily range small. That was not the case today as volume surged driving the Transports to a 1.5% loss. The major Indexes may be finally taking notice of the very weak action in this key sector. Both the Dow 30 and S&P 500 rallied into the close to finish well off their respective lows. Despite the rebound they both, as well as the Russell, lost just over 1%. We continue to believe the Transports hold the key to an overdue, and steep pullback. The message so far this week is beginning to attract attention.
Gold has been running stops on both the Longs and the Shorts over the last several weeks. It looked like a bottom was in – but we now see the possibility of another false breakout and or running of the stops on the Shorts above 1220.
Let’s see if 1180 holds. The chart is certainly undecided. IOW – a case can be made for the Shorts yet again.
Key bit from Zerohedge.com: After dramatically upwardly revised data from last month (but following an even more dramatic downward revision to all historical data earlier in the month) – the highly noisy series of Durable Goods Orders printed -0.5% (from +5.1% in March, revised up from +4.0%). Capital Goods Orders (non-defense Ex-Air) beat expectations MoM (printing +1.0% vs 0.3%) and was revised remarkably up from the biggest drop since 2012 to a 1.5% rise in March.
Core Capital Goods Orders, however, remains negative YoY for the 4th months in a row. The last time this happened was either a recession, or the Fed unleashed QE3.
Interesting research out this weekend from Deutsche Bank: “ We believe the probability of a 5%+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, weak earnings growth and continued soft economic data. We haven’t had a 5%+ dip this year. Historically 5%+ dips are common and happen at least once a year since 1960, except 1964, 1993 & 1995. It has been 916 trading days (3.6 years) since a 10% correction. Selloff triggers could be a further rise in 10yr yields especially if UE keeps falling amidst slow economic growth and Fed remains unclear on first hike timing, or a jump in the dollar upon the Fed expressing firm intentions to hike in Sept.”
Hat Tip Josh Brown.