Key takeaway: Excessive optimism has been slow to unwind and most of our indicators are back to signalling a high risk environment from a sentiment perspective. Individual investors last week showed the fewest bears since January 2018. While complacency abounds, investor risk appetite remains shy of where it was in March, even with the uptick in speculative activity over the last two weeks. Liquidity conditions have been tightening of late and momentum trends are diverging from price trends. While the apple cart has not been upset, the load is perched precariously and one small stumble could send fruit flying in all directions. It’s not a low-risk load on which to ride.
Sentiment Report Chart of the Week: Shifting Leadership?
The decade-long trend of US outperformance remains intact. However, more and more information points toward a possible trend reversal. The S&P 500 ETF $SPY breaks to new lows relative to Eurozone ETF $EZU. Further weakness in the SPY/EZU ratio below the long-term trend line would signify a market environment that many investors are not prepared for.
