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An excess of caution?

Summary:
Mid-week market update: Is market psychology cautious enough? A recent Deutsche Bank survey of investors reveals that not only is a correction the consensus, correction sentiment rose between September and October.  SentimenTrader also observed that inverse ETF volume has spike to a record level. Is this cautious enough for you? Supportive internals The analysis of market internals reveals a number of supportive elements. A survey of Advance-Decline Lines show that all flavors except for the NASDAQ are exhibiting minor uptrends. The NASDAQ A-D Line is testing support, which is consistent with the recent lagging nature of large-cap growth stocks. High beta small-cap stocks are also outperforming, which is another indication of improving equity risk appetite. Credit

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Mid-week market update: Is market psychology cautious enough? A recent Deutsche Bank survey of investors reveals that not only is a correction the consensus, correction sentiment rose between September and October.
 

SentimenTrader also observed that inverse ETF volume has spike to a record level. Is this cautious enough for you?

Supportive internals

The analysis of market internals reveals a number of supportive elements. A survey of Advance-Decline Lines show that all flavors except for the NASDAQ are exhibiting minor uptrends. The NASDAQ A-D Line is testing support, which is consistent with the recent lagging nature of large-cap growth stocks.
High beta small-cap stocks are also outperforming, which is another indication of improving equity risk appetite.
Credit market risk appetite, as measured by the relative price performance of junk and investment grade bonds relative to their duration-equivalent Treasury benchmarks, are showing minor positive divergences.
In addition, SentimenTrader pointed out that there is extreme pessimism in the IG market.
In conclusion, market sentiment and internals have risk/reward tilted to the upside. At a minimum, don’t be short.
Disclosure: Long SPXL
About Cam Hui
Cam Hui
Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as an equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989. He is left & right brained modeler of quantitative investment systems. Blogs at Humble Student of the Markets.

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