Daily market review Nov 8 ( What if Big Institutions are still under-allocating equities ? )
One of the most valuable skill as an Investment manager/trader is to assess incoming data, incorporate them into their own current market assessment and adjust their view/plan accordingly. Most recent example being, in the week of Oct 23 – 27, Doom and Gloom is everywhere, by around Nov 3, there was all this talk about Breadth thrust/market might be turning around.( which was why I did Bullish, bearish macro scenario planning in my weekly market review entry Oct 23 – 27 Part 1 to get ahead of this changes, & very luckily I was proven right so quickly, luck dis play apart but I might not be so lucky next time )
But the thing that I really wanted to highlight is my previous view of waiting for a pull back, I need to adjust my baseline probability based on the evidence so far ( big guy under-exposure of Stock ).
Possible path of SPX and it’s probability have been revised, as per the chart.
Reasons for revision – CTA under-allocation to Equities
Currently, CTA ( Commodity trading advesor) is having the least allocation to equities in 5 years, below 2020 Pandemic low and 2018 Volmageddon/Trade war bear market low. IF index creep up higher/breakout higher in the coming days, their buying flow ( triggered by their trend following algorithm ) is the next fuel for market rally. as per Data for Goldman Sachs FICC
Also, NAAIM ( National Association of Active Investment Managers ) shows that asset manager are still quite underexposed to stock market. This is soft data, but beggar can’t be chooser if we don’t have any source of flow data.
Therefore as stated yesterday, I might be wrong about Sep breakaway gap not being exceeded in 1st try, possibly because of the following 2 reasons,
Reason 1: Some big institutions haven’t got in on the rally/are still under-allocating equity, if this scenario is true, they might not wait for pull back and will keep chasing the rally instead. (even if rally continues, pull back might still come at a later stage to shakeout some weak hand )
Reason 2 : pull back/retest of previous support might only happen to the equal-weighted indices, Mid&small cap, but not Cap-weighted indices at the moment ( since cap weighted indices are stronger performer than Mid&Smallcap, equal-weighted counterpart)
What is likely to happen, Indices and stock will be in holding pattern until Nov 14 ( CPI release ), and indices will likely breakout in either direction upon CPI data release. ( I seriously hope it will breakdown to allow us to increase our equity exposure/get in for those who haven’t yet ). And if market rally further post CPI, big guys might possibly have to chase the rally instead.
But hope is not a plan (market rarely give you what you hope for), therefore below is the initial plan that I have came up with, I am still thinking through , may/may not follow through with the following plan.
To readers: Disclaimer apply, follow at your own risk.
Bollinger band 63Day-MA + 2SD
Rationale for this model are explained in previous blog entry (Weekly market review Oct 31 - Nov 3 part 2) if new readers would like to know more.
Looking at SPX and NDX using this model,
SPX stay above 63day -MA for 3 days in a row
NDX stay above 63day-MA for 4 days in a row
This is additional evidence for my 3 plans stated above
Broad market overview
Equal-weighted indices, Mid&Small cap are underperforming Cap-weighted counterpart for 3rd day in a row.
MOVE index
MOVE index closed at around 117, would like to see it closing below 120 consistently and move closer to 100 in the coming days.
10Year-Yield (TNX)
10Y yield still hover around @50day-MA and resting at 2nd Uptrend line, perfectly possible for 10Y yield to retest 4.7-4.8 level further ( US Indices retrace if 10Y yield retest 4.7 – 4.8 ) before breaking down further. A break of 2nd downtrend line and 50Day-MA will provide further fuel for rally.
NYSE AD ratio and volume statistics
Monday Nov 6, 2.58 to 1 NYSE Decliner to advancer ratio (2077/800)
Tuesday Nov 7, 1.38 to 1 NYSE Decliner to advancer ratio (1664/1208)
Wednesday Nov 8, 1.37 to 1 NYSE Decliner to advancer ratio (1664/1208)
Wednesday underlying breadth is similar to Wednesday, and even though there are more decliner than advancer, it occur at a lower volume compared to previous weeks, so it’s not too concerning.
% of SPX stock above 50days and 200 days MA
Market breadth is improving,
percentage of SPX-Stock above 50days-MA, recover from Oct-27 low of 10.6 to 46% .
percentage of SPX-Stock above 200days-MA, recover from Oct-27 low of 24.6 to 39.8% .
Sector performance
Offensive sector ( Technologies, Communications , Consumer discretionary), financials, industrials are outperforming Defensive sector (Utilities, consumer staples) on a 1-week basis, from Nov 2 – 8.
There’re not much changes in all other charts , so I will skip them today, and will post them later when there’s noticeable changes.
As always, we will continue to monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
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