Markets Are Overbought

April 04, 2019

The markets are still overbought. They have been trading sideways for almost the last two weeks. We do expect the market to pull back, not a significant pullback but a few points. Everyone is waiting to see if the market is going to retest the lows set in December, and only time will tell. Patience is critical at this point.

01-30-2019 SPY


Let’s talk about the recent waterfall sell-off from mid-October to December. Fundstrat had some good research on what to expect going forward. They say “The current YTD market move is tracking very closely to post-waterfall decline markets. We define a waterfall decline as a 19% move in less than 60 days, something that has happened 10 times since WWII.  Of these episodes, 3 took place when US PMIs were already <50 (contraction). The 2019 recovery looks similar to the composite of the 7 non-contraction declines.  The 12-month gain for those 7 is at 32%.”

There is a lot of cash build-up on the sidelines after the waterfall sell-off. Sooner or later it will be deployed back into the markets. As we have previously mentioned, everyone will need to start trading faster and faster as high-frequency algorithmic trading has become the norm.

  • Consumer confidence continued to decline in January amid increased financial market volatility and the government shutdown.
  • The Consumer Confidence Index fell 6.4 points to 120.2. This is its third decline in a row and the lowest level since July 2017.
  • The consensus was for a 4.1-point pullback to 124.0, as the previous month was revised down by 1.5 points to 126.6.
  • While the assessment of the present situation was near steady, consumer expectations dropped a sizeable 10.4 points to 87.3. This was the lowest reading since October 2016.
  • Notably, the outlook for business conditions was the weakest since November 2013.
  • Net expectations of job availability were negative for the first time since October 2016.
  • For now, the decline in confidence is not impacting purchasing plans.
  • Home buying plans hit a record this month, which is a positive sign for the upcoming spring home buying season

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