Markets vibrate up and down, it is part of the natural order, just as the moon waxes and wanes, so too the emotions and sentiments of investors. We all believe we are rational, but too often we get caught up in the news and emotions of the day. The cycle of optimism/pessimism plays out in all freely traded markets.
So, what is an investor/trader to do?
We look to find an edge and we take advantage of the situation when the odds of a successful trade are in place. In that regard, investor/trader sentiment in its various forms can be utilized to determine higher probability reversal points.
Twitter is a good source of information of this type, as there are several highly respected market analysts and technicians that post their views (looking to pick up subscribers), generally backed up with some data or insight. Just this past week several market analysts pointed to indications of overly bearish sentiment. (Contra indicators portending a tradeable bottom)
One analyst on the Twitter feed pointed out that the Equity only 10-day put/call ratio was .64 which is quite elevated, indicating an overly bearish sentiment. Traders look at a statistic such as this as a contra-indicator. Inordinate put buying in relation to call buying can be seen that way. Some like ourselves find value in tracking it as part of a mosaic of sentiment indicators.
A second analyst’s tweet brought our attention to the cover of Bloomberg Business Week which had the caption “The Big Chill: Investors are bracing for more pain as a cold snap descends on the market” The cover had a picture of the famous bull on Broad Street covered in fictionalized snow.
Still another analyst posting on Twitter brought our attention to this week’s Barron’s magazine cover with the caption “Volatility is here for a while. How to invest around it.” The cover had a picture of a bull bucking multiple people off its back.
And finally, the fourth tweet from a financial website that got our attention with this comment: Everyone is hedged for a crash “we have been averaging $1 Trillion of puts per day. Largest on record” –GS. The tweet showed a graph of the climb in put trading since 2013. It featured several spikes along the way on the chart but it was notable to be at an all-time high.
These various observations line up with the master cycle roadmap we have spoken of in recent editions of this blog. Based on a repetition of the cycle we were looking at an early January high, a low on or about the 24th with a test of low no later than January 31st. From there a rally into mid-February. It is our intention to fine-tune when that expected swing high might occur in next week’s edition of the blog. Given the sentiment, the drumbeat of potential war in Ukraine, the never-ending virus news, it appears that risk has been priced in and equity markets should rebound for the next couple to three weeks. Maybe the Olympic Games will brighten spirits along the way. Let’s see what happens.
As we have stated before, we expect that 2022 will be a down year, but there will be plenty of opportunity on the long and short sides. Stay alert and stay safe.
DISCLAIMER
The content of this message and its attachments are intended only for the informational and educational use for the intended recipient and may contain confidential and privileged information. If you are not the intended recipient, any dissemination, distribution, or copying of this message or its attachments is prohibited. If you received this message in error, please notify the sender by replying to this email immediately and delete this message and its attachments from your computer. The information provided by TradeZero America, Inc. is solely for educational and informational purposes. None of the information should be understood, construed or inferred to be an offer or solicitation of an offer, or a recommendation, to buy, sell, or hold any security or financial product, or engage in any particular investment strategy. This message is also not an offer to provide advisory or other services by TradeZero America, Inc. All communications sent to or from TradeZero America, Inc. are subject to archive and review by TradeZero America, Inc. and by regulatory and law enforcement authorities. We explicitly disclaim all liability for any action taken based on any information contained in this writing.