Jason, from Sentimentrader.com, created what I thought was very savvy. Trying to find
areas of fear to use as a contrarian. Below are the times that CNBC created a special report
“market turmoil” segment that has basically set the bottom several times for the next few months there-after.
Good chance we can get a bounce into year end with short term sentiment also very over-sold.
( please also see https://www.lmtr.com/category/sentiment-updates/ )
The NYSE Bullish Percent Index chart from Investors Intelligence is a much better way to look at the health and direction of the stock market than indexes such the S&P 500 or the Dow Jones Industrials since it is gives equal weight to all of the stocks on the NYSE based on whether each are overbought or oversold. The S&P 500 indexes, on the other hand, are heavily weighted toward the largest cap stocks which dominate the price direction of indexes.
The NYSE Index, which has been a staple of market timers for over 100 years, has diverged from the heavily weighted indexes. The divergence suggests that the average stock, compared with the largest cap stocks, have not been participating in the bull market. Meaning: The average stocks is in bear market territory.
Asian markets are now in bear territory with many other markets around the world doing poorly. The US correction is a catch up move, but is not yet in an intermediate term oversold position. Typically the NYSE bullish percent need to be close to 20, as in 2015. We currently are at 50 down from a lofty 70.
In 2008, to stave off the worst financial crisis since the Great Depression, the Fed began a program of “quantitative easing” to save the economy, eventually buying trillions of dollars of government bonds and mortgage-backed securities to keep interest rates low. Now amidst strong economic growth the Fed has initiated a program of “quantitative tightening,” selling off the assets it had accumulated, which by itself means higher interest rates. However, as the government allows supply to expire. The market place has to basically refi that debt. The added supply to the market place could also drive interest rates even higher than anticipated.
The dot com and housing bubbles of the recent past were marked by big increases in debt for those sectors, followed by sharp economic and market declines. Today, debt is spread across many areas (See chart below). And that is extremely worrisome for the economy and the markets from a historical point of view. For more about big debt crises, their causes, solutions and how investors can protect themselves here’s a link to get a free pdf copy of the highly regarded “A Template for Understanding Big Debt Crises” by Ray Dalio, founder of Bridgewater, one of the world’s largest hedge fund.