Readings: Bear market bottom?, Short sales, Oil & stocks
- Smart Money: Bear Market: Where Do We Go From Here?
Investor sentiment, as depicted in the usual surveys, is pretty much as sour as during those prior lows. Corporate insiders’ selling has returned to rock-bottom levels. Chief Executive magazine’s CEO Confidence Index is now 15% below the level of October 2002 — a time when CEOs were a hunted species, remember. And the percentage of stocks under key averages and the tally of new lows — measures of how “oversold” the market is — also are in the range of prior bottoms. Retail investors are, again, pulling cash from stock funds and hoarding it.
Weakness in leadership groups is often a prerequisite for a bounce, engendering a “no place to hide” vibe that can accompany capitulation.
The only thing more glaring than the refusal of the options market’s volatility index (VIX), now near 25, to rise to the hoped-for heights of the first quarter above 30, is the constant commentary about this fact. (For one view, see Commodities Corner.) Citigroup strategists argue that the VIX did get high enough above its 60-day average last week to hint that it was “high enough” to allow for a rebound before too long, incidentally.
So-called short interest on the New York Stock Exchange has risen 55 percent this year to a record 3.6 percent of listed shares, JPMorgan Chief Equity Strategist Thomas J. Lee wrote in a report today.
A record 36 percent of the companies in the S&P 500 have at least 5 percent of their shares sold short, the report said. Eighteen percent have more than 10 percent of their shares shorted. “The record short interest suggests to us that being a bear is consensus,” Lee wrote. “It has not paid to be a contrarian lately, but we wonder how often is consensus right.”
The 55 percent jump in short interest since October exceeds all other gains since 2000, the report said. The six previous increases averaged 28 percent and lasted 11 months, Lee wrote
- BCA Research: Crude Prices: Correction Underway?
. . . the recent decoupling of oil prices with both Treasury yields and energy stocks suggest that crude prices have overshot relative to the global economic backdrop.
The primary source of near-term support for oil prices is geopolitical and low inventory levels, albeit the Saudis have promised to increase output.
Bottom line: We remain underweight crude oil within the commodity complex and expect prices to continue to grind lower in the coming months. This will be a critical development for risky assets to regain strength.
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