Mid-week market update: Is market psychology cautious enough? A recent Deutsche Bank survey of investors reveals that not only is a correction the consensus, correction sentiment rose between September and October.
SentimenTrader also observed that inverse ETF volume has spike to a record level. Is this cautious enough for you?
The analysis of market internals reveals a number of supportive elements. A survey of Advance-Decline Lines show that all flavors except for the NASDAQ are exhibiting minor uptrends. The NASDAQ A-D Line is testing support, which is consistent with the recent lagging nature of large-cap growth stocks.
High beta small-cap stocks are also outperforming, which is another indication of improving equity risk appetite.
Credit market risk appetite, as measured by the relative price performance of junk and investment grade bonds relative to their duration-equivalent Treasury benchmarks, are showing minor positive divergences.
In addition, SentimenTrader
pointed out that there is extreme pessimism in the IG market.
In conclusion, market sentiment and internals have risk/reward tilted to the upside. At a minimum, don’t be short.
Disclosure: Long SPXL