Glass half full or half empty? Maybe the answer lies in sleep. Did you know that, if you sleep on your left side, you are more likely to have nightmares than if you sleep on your right? According to some studies published on the subject, your physical position affects your subconscious attitudes.
When it comes to opinions on the market, most people must sleep on the left and are prone to nightmares. I sleep on the right. And here's the deal: all signs point to bullishness, despite the headlines desperate to get attention.
The news is trying to bring everyone down. They write catchy headlines like:
"This is why the market could be 30% lower next year," or something similar. We've seen so many negative and shocking headlines, but it's important to remind ourselves that the market is at all-time highs.
Here's what I see: big buyers are back. And man, that's bullish. Demand for equities is driving the market higher. I can say that based on measured evidence of big money investors buying up stocks. Below is a chart put out by Mapsignals. It shows net buy/sell signals each day. A green bar means more buys than sells for a given day. Red bars are days when sells are larger than buys. As an example, 90 buys and 50 sells results in a 40 green bar.
After big red sticks, look for green, which means higher prices ahead to us.
We are seeing a big imbalance in signals now for the third week in a row. The average buy-to-sell ratio has been 2.6:1 for the prior two weeks. But this past week, it was 3.5:1. That will boost our Mapsignals Big Money Index (MBMI) in the coming days. A rising MBMI (more buying than selling) usually means a higher market.
The flood of money coming into stocks can be seen in a few places. Each of the yellow buy columns below represents a sector seeing unusually large buying. Notice how health care, previously unloved, is coming back and attracting capital? The slaughter of software seems to be over for now, and tech is seeing continual buying in semiconductors and hardware.
Elsewhere in the sectors, every sector save consumer staples and energy saw huge buying. Industrials shot to our top sector spot with 73 buys last week. Tech was strong as mentioned. The financial sector is seeing buying in banks. But the biggest story of this past week is the 68 buy signals coming from real estate. The demand from yield-hungry investors is healthy for the market.
Energy stocks continue to be the weakest link. We saw 29 sells this past week.
On the subject of semiconductors, above, we have a great setup for the semiconductor industry. Look at the chart below showing semiconductor buying vs. the VanEck Vectors Semiconductor ETF (SMH). Notice that, when the buy signals vanish, the SMH falls like in July 2015. Then, when the buying picks up, it's off to the races. The SMH ETF rallied 150% over the next three years. Then the buying vanished again, and the index fell, followed by another short spurt of buying. Well guess what? The buying just picked up again in a big way.
As far as the market as a whole, as usual, "ignore the noise" and focus on the real deal. Thankfully, the real underlying stories amid the annoying news noise corroborate the bull case.
- The Fed lowered its benchmark funds rate by 25 basis points to a range of 1.5% to 1.75%, as expected. This keeps pressure on the 10-year Treasury yield at 1.73%, while the S&P 500 dividend yield is 1.87%. When stocks yield more than bonds, that's bullish.
- Ryan Detrick, CMT, points out that the best six-month period for stocks is upon us now. This is the table for the past nearly 70 years. He also points out that the past 10 years look better: higher nine times out of ten, with 8.8% gains on average.
- U.S. employers added 128,000 jobs in October, the Bureau of Labor Statistics said in its monthly jobs report. That is a strong number and helped rally shares in a positive reaction.
- Factory activity in China expanded at its fastest pace in more than two years in October as export orders and production rose, a private business survey showed on Friday.
- Seeking Alpha pointed out that there is a monstrous amount of capital on the sidelines. Money Market inflows have been climbing in 2019, with assets now totaling $3.49 trillion.
- Of S&P 500 companies, 76% beat earnings expectations and 61% beat sales (71% of companies reported as of Nov. 2).
Rates are low, there's oodles of money on the sidelines, sales and earnings are working, unloved sectors are catching some juice, China is showing some much-needed signs of life, our economy is strong, and people are still bearish. This sounds like a nice bull setup to us.
Maybe tonight, if you're bearish, sleep on your right side. Apparently Ernest Hemingway did too. He said "I love sleep. My life has the tendency to fall apart when I'm awake, you know?"
The Bottom Line
We (Mapsignals) continue to be bullish on U.S. equities in the long term, and we see any pullback as a buying opportunity. Weak markets can offer sales on stocks if an investor is patient.
Disclosure: The author holds no positions in any stocks mentioned at the time of publication.