Stock market bulls were right again; bears not so much.
We were thinking this morning about 30 years of market experience and what it means to an investor these days? Well, one of the many things we have learned over the years is this nugget. “Market or investor” sentiment and “institutional” sentiment often provide conflicting signals.
TICK Cumulative = “Institutional” Sentiment
Since we know institutions control more than 60% of stock market price action, it stands to reason that tagging along with the professionals (hedge fund managers, deep pocket investors, etc.) is the wise position to take.
“When should I buy?”
TICK cumulative provides the answer to that question. TICK Cumulative in the bottom panel is still rising. That can only happen if institutions are buying on the uptick, more stock than they are selling on the downtick. Hence, you should be bullish but confirm with a bullish breadth indicator.
Furthermore, since institutions are frequently right, individual investors are viewed as a contrarian signal. With AAII bullish sentiment below 30%, that tells us mom and pop are fearful or less bullish than they are on a historical basis.
Breadth Confirms
With sentiment bullish, we look to confirm with breadth. The histogram changed direction three days earlier. In addition, note the moving average has turned bullish.
As we can see, advancers are beating decliners in the lower panel. We will watch this closely over the coming days for any change in character. If NYAD continues higher, that would be a bullish confirmation signal as well.
NYSE Composite – Price is King
We are interested in cycles, for we view these waves of sentiment, breadth and price action as signals, that ultimately lead to success.
Note, the cycle is close to the buy zone (green), showing potential reversal characteristics.
How can this help me as an investor?
This means we are about to enter a phase where we can begin to add to our swing positions with confidence. If price action, sentiment and breadth agree, we have a winning combination.
If we see price action lifting above the 9/20ema in the SPY chart, top of the page, and the NYSE Composite (2000 stocks), together with the thoughts herein, your probability of winning stock picks working are increasing.
To put it another way, trade the good setups that we provide you every week. Look for “block size trades” that confirm your bias. And, always use proper money management and stops.
Happy Tuesday,
Vinny
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