In case you missed it this week, our team just got a whole lot better. Willie Delwiche is officially part of the Allstarcharts Team. We couldn’t be more excited to have someone with his experience adding to the conversations we’re already having every day.
To no surprise to any of us, Willie is already hitting the ground running with some excellent perspective on current market sentiment, valuations and breadth.
Here’s what he had to say today,
Stocks are historically expensive, but this is offset by ample liquidity being provided via monetary policy (and to a lesser extent the hope of additional fiscal stimulus). Investor sentiment is heavily tilted toward optimism and complacency. This becomes a more acute concern when market momentum is faltering and/or rally participation is narrowing. That is not currently the case, as an increasing number of markets have broken out of bear markets that stretch back to 2018 or earlier”
Every week, we’ll be publishing a list of all the most useful sentiment indicators and polls. The thing with sentiment is that there is no single data set that will give us all the answers. The real advantage is in aggregating them all and weighing all the evidence.
Here are some thoughts from Willie,
The 5-day equity put/call ratio slipped last week and on a daily basis it made a new low this week (at 34%). Weekly tactical sentiment indicators have continued to show excessive optimism. This week’s Investors Intelligence data shows bulls, bears and the bull-bear spread all moved toward their recent extremes.
It is true that tactical optimism can persist, and sentiment excesses tend not to matter until they do (more on that in a moment). This sentiment backdrop is more consistent with volatility and consolidation than it is with sustained stock market strength.
Valuations and household equity exposure are more consistent with risk than opportunity from the perspective of long-term equity market returns.
Extreme optimism becomes something to act upon when faced with deteriorating broad market trends. That is not being seen right now. Sector-level trends are improving with upside momentum re-emerging and global rally participation remains robust with virtually all world markets currently in uptrends.
One chart that stood out to me was the National Association of Active Investment Managers survey. To me, it looks like they still have a lot more buying to do before even just getting back to the early 2018 highs.
You can download this week’s full Sentiment here:
Please let me know if you have any questions.