Does Worry Tend To Be Healthy For Markets?

1.) BOABS – “Bank of America BS.” Harsh for a Monday morning? Maybe. But sometimes I like to point out what not to pay attention to in terms of some indicators because of the way they are built. The Bank of America Bull/Bear Indicator is one of them. It goes from 0 to 10. When it gets above 8, Bank of America calls that an “extreme bull” reading and considers it a sell signal. When it falls below 2, that’s an “extreme bear” reading and a buy signal. Right now, it’s at 9.7… about as bullish as you can get. Scary? It shouldn’t be if you understand how this is built. The indicator combines things like hedge fund positioning, long-only (buyers) investor positioning, money flowing into stocks and bonds, credit markets, and stock market breadth. Basically, it is asking questions like: Are investors buying stocks? Are more stocks around the world participating? Are credit markets healthy? Are professional investors positioned for stocks to rise? Right now, those answers are mostly, “yes.” And we’re supposed to conclude that all of this is bad for stocks? That good things happening are bearish? Well, if investors are supposedly experiencing some historic level of bullishness, where are all the bulls? The AAII survey actually asks individual investors whether they think stocks will be higher or lower six months from now. We’ve now had four straight weeks with more bears than bulls. Meanwhile, consumer sentiment is still sitting near some of the lowest levels in history. A wall of worry is a healthy thing for bull markets.

2.) OIL – Oil (West Texas Intermediate - WTI) is looking like it wants to fail here at the bottom end of the trend, which is about $84/barrel. That would continue to create a deceleration in inflation data, which would continue to confirm “no rate hike” this year.

3.) FIBONACCI – From time to time, I’ll visit various Fibonacci levels to see where the extensions are… levels that have a higher probability of markets or sectors reaching. Some might think that a “9” handle on the S&P 500 is nuts. Fibonacci’s math would disagree. Now, will we go straight there? No, probably not. But not too long ago, many thought 7000 was crazy. Could we revisit 7000 before moving higher? Sure. But right now, markets in general continue to exhibit more healthy characteristics than not.