Mid-week market update: The equity bull market began about a year ago. Ryan Detrick observed that the second year of past major bulls have averaged gains of 16.9%, though investors should not ignore pullback risk. Animal spirits Bullish readings are confirmed from a long-term perspective by a combination of strong MACD momentum and the emergence of market animal spirits. Past bullish crossovers of the monthly MACD histogram have marked strong buy signals (blue vertical line), though bearish crossovers (red lines) have been less effective sell signals. In addition, while most analysts have scrutinized option call and put activity for short-term trading signals, a big picture view of the equity call/put (inverse of the put/call ratio, top panel) shows that a steadily rising
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Mid-week market update: The equity bull market began about a year ago. Ryan Detrick observed that the second year of past major bulls have averaged gains of 16.9%, though investors should not ignore pullback risk.
An EM crisis?
If you are a short-term trader, note that tip-off in the first game of this year’s March Madness is 4 p.m. Eastern time on Mar. 18. The tournament ends with the championship game on the evening of Apr. 5.The correlation between sports and the stock market was documented by a study published a number of years ago to in the Journal of Finance. Entitled “Sports Sentiment and Stock Returns,” its authors were finance professors Alex Edmans of the London Business School; Diego Garcia of the University of Colorado at Boulder; and Oyvind Norli of the BI Norwegian Business School.After studying more than 1,100 soccer matches, the professors found that, on average, a given country’s loss in the World Cup elimination stage is followed by its stock market the next day producing a return that is significantly below average. Though they focused primarily on the World Cup, they also studied cricket, rugby and basketball matches as well.Crucially, the researchers did not find a symmetrically positive stock market impact following a World Cup win. They speculate that this is because a win merely means that a country’s team advances to the next round, while elimination is final. As a result, losing teams’ fans are likely to be more despondent than winning teams’ fans will be exuberant.The logical consequence of this asymmetry: global stock markets should experience abnormal levels of selling during the World Cup and, therefore, below-average returns. And, sure enough, that is exactly what was found by another academic study, this one by Guy Kaplanski of the Bar-Ilan University in Israel and Haim Levy of the Hebrew University of Jerusalem.