EarningsBeats.com Digest for March 23, 2022
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Q1 Market Update
Wednesday, March 23rd at 4:30pm ET
Join Tom Bowley, Chief Market Strategist for a Q1 Market Update. Tom will cover index charts, rotation (growth vs. value), sustainability ratios, the dollar and commodities, as well as examining bottoms of historical cyclical bear markets. You don't want to miss this FREE session.
As a free subscriber, you're invited! You will be emailed room instructions later today and the event will be recorded for those unable to attend live. We hope to see you there!
Sentiment Still Has A Long Way To Go
At the end of 2021, there were several warning signs that 2022 could get off to a rough start. First, there was tremendous rotation away from aggressive areas of the stock market and into defensive areas. That's typically what we see when a rally is "long in the tooth" and needs a period of selling or consolidation. Perhaps an even bigger red flag, however, was the extreme bullishness in the options world. NEVER had we seen the amount of
call buying that we saw throughout the pandemic. It shows up in the equity only put call ratio ($CPCE), which is reflected in the bottom panel below as a 253-day moving average (1 year):
Sentiment is a mindset that's established over a long period of time. When the stock market has been fearful for many, many months, it's reflected in higher readings of the equity only put call ratio. On rare occasions, we'll see the CPCE hit 1.00 on a daily basis. The last time it happened was in March 2020, when the CPCE reached a high of 1.28. When this type of bearish behavior takes place for an extended period of time, major bottoms
form. In the chart above, note that when the 253-day moving average of the CPCE is rising, it's occurring in tandem with poor overall market behavior. However, when we finally top, as we did in early 2009, mid 2012, and mid 2016, significant market rallies generally take place. I have been wanting to see the pessimism build in the form of higher CPCE readings, so that we can launch higher once again within this current secular bull market.
While the 253-day moving average of the CPCE has been rising for the past few months, there's potentially much more pessimism needed to truly mark a meaningful bottom. I'll be discussing this in more detail in tonight's "Q1 Market Update". I hope you can make it!
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Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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