Despite the chorus of analysts and investors calling for the long-awaited correction, the market is showing some constructive bullish signs. First, deterioration in the U.S. dollar has buoyed large-cap stocks, which are once again outperforming small caps. This removes a large headwind for the capitalization-weighted major stock indices as a stronger dollar negatively impacts foreign profits. Second, sentiment has soured greatly despite the fact that the market remains near its all-time highs. Below is a chart of SPDR S&P 500 ETF (NYSE: SPY) with data from the American Association of Individual Investors (AAII) sentiment survey. We can see a major… Read More
Despite the chorus of analysts and investors calling for the long-awaited correction, the market is showing some constructive bullish signs. First, deterioration in the U.S. dollar has buoyed large-cap stocks, which are once again outperforming small caps. This removes a large headwind for the capitalization-weighted major stock indices as a stronger dollar negatively impacts foreign profits. Second, sentiment has soured greatly despite the fact that the market remains near its all-time highs. Below is a chart of SPDR S&P 500 ETF (NYSE: SPY) with data from the American Association of Individual Investors (AAII) sentiment survey. We can see a major decline in bullish sentiment and increase in bearish sentiment. And the ratio of bulls to bears, shown in the bottom panel, is now at levels where previous rallies have started. The AAII sentiment survey is a contrarian indicator — i.e., high bullish readings are bearish and high bearish readings are bullish. Therefore, the souring sentiment is a positive for the market. Finally, the market trend is up. You can see the trend channel clearly in the chart above. #-ad_banner-#… Read More