1/ Sentiment is Near a Record Extreme
2/ What Breadth Thrust?
3/ Follow the Yellow Brick Road
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1/ Sentiment is Near a Record Extreme
Contrary to the popular opinion, that investor sentiment is overwhelmingly bearish and deeply depressed, based upon the Speculative / Conservative Ratio developed by Peter Elides, investor sentiment is actually challenging its all-time record extreme. The a ratio compares the trend of the Nasdaq 100 index to the Dow Jones Utility index. When the ratio is rising, it means that investor demand for speculative growth stocks is dominating demand for conservative dividend paying stocks. The ratio first reached a climax at the height of the Tech Bubble in March 2000, and again in November 2021. The latest high was achieved in September 2023.
2/ What Breadth Thrust?
There has been a plethora of articles posted on social media referencing the great importance of the so-called Zweig “Breadth Thrust” signal. Indeed, we are strong proponents of the notion that the quality of a bull market advance improves or deteriorates in direct proportion to the number of issues that are participating in said advance. Yet, when we observe the ratio of the Vanguard Extended Market ETF (VFX), to the S&P 500 ETF (SPY), it’s difficult to see what all of the excitement is about. The VXF represent the other 4,500 stocks that make up the FT Wilshire 5000 index, ex-the S&P 500 constituents. These stocks have barely budged from their lows.
3/ Follow the Yellow Brick Road
Perhaps the most interesting, and least talked about investment opportunity for new money of which we are aware is that which lies with the ultimate hard money asset – Gold. Indeed, the barbarous relic appears poised for another challenge of its all-time high. In our opinion, a sustained weekly close above $2,000 would like attract enough new buyers to catalyze the move. A bullish inflection above $2,085 would project a measured move to approximately $2,347, then $2,560. In our view, as long as the yellow anachronism can sustain above its October low of $1,823, the bull case for gold is on the table.
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Originally posted 20th November 2023
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