Market Pros Fighting The Trend?

The stock market celebrated the encouraging monthly jobs report last Friday. Passage of the infrastructure bill after the close is likely to further support bullish investor sentiment. Despite the record-breaking rally from the S&P 500’s October 4^th low, the latest survey by the American Association of Individual Investors (AAII) just 41.5% are bullish compared to the April 7^th reading of 56.9%. It is also surprising that 32.5% of investors are neutral on whether stock prices will rise over the next six months.

For the second week in a row when all the markets were higher. The iShares Russell 2000 was the top performer up 6% while the Dow Jones Transportation Average was up 5.9%. These gains were in contrast to the 3.2% gain for the Nasdaq 100 Index ($NDX) and the 2% rise in the S&P 500.

The SPDR Gold Shares (GLD)

GLD
rallied sharply in reaction to the FOMC announcement on Wednesday and closed up 1.9% for the week. GLD is still lower year-to-date (YTD). The YTD gains all improved last week and while a 26.9% performance by the $NDX is impressive it was up 47.65% in 2020 and 38% in 2019. Many may also be surprised to learn that the $NDX was up 102% in 1999.

The Invesco QQQ Trust (QQQ)

QQQ
which tracks the $NDX moved above its weekly starc+ band for the first time since the week ending September 4, 2020 (point b). Since the starc+ bands were created by the late Manning Stoller to encompass over 90% of the price activity the QQQ is now in a high-risk buy area. That does not mean it can’t go even higher.

In early 2020 (point a) the weekly starc+ band was exceeded for six of seven weeks before the February-March market plunge. Of course, a few weeks of sideways to lower price action would also change the risk profile based on the starc band analysis.

The Nasdaq 100 Advance/Decline line was strong again last week which does favor further gains. The A/D line did drop below its WMA for the week ending October 1^st (point c) but the daily A/D lines flipped back to positive before the end next week when the weekly turned back to positive.

Though investors and traders are enjoying the market action based on the latest Bank of America

BAC
fund manager survey conducted the week ending October 14^th these large money managers do not seem to be that positive on the stock market. The survey revealed a “negative outlook for global growth” as their view was the least bullish in over a year.

It was also interesting that hedge funds were reported to have lowered their net equity exposure to 26% down from 41% in September. Those surveyed were even more negative on the outlook for bonds even though 58% saw “inflation as transitory”.

The…