From the desk of Willie Delwiche.
Key Takeaway: Risks remain elevated from a sentiment perspective. The bulls continue to hold court as bears are relatively absent despite their rise in recent weeks. Though there are signs that the extended reign in optimism may face a new challenge. Earnings revisions have ceased to rise, taking with it a tailwind that has accompanied the bulls for over a year. Without that tailwind, the possibility of a larger sentiment response to downside pressure on stocks increases. Lower prices have a tendency to beget a pessimistic outlook that in turn begets lower prices. This negative feedback loop could fuel a more complete unwind in sentiment than has been seen to date.
Sentiment Report Chart of the Week: Earnings Revisions Stall
Optimistic investors have been benefiting from the tailwind provided by steady upward trend in earnings revisions. That trend has not yet rolled over, but it has stopped rising. The trend stopped rising (but didn’t go down) in Feb/Mar and stocks struggled. There is more room for price volatility to fuel a more pessimistic outlook when the earnings revision trend is flat to down.
