Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19
Central Banks’ Gold Buying and Repatriation Spree - 28th Nov 19
Another Precious Metals’ Reversal Coming Right Up! - 28th Nov 19
Stock Market 100% Measured Moves May Signal A Top - 28th Nov 19
Don’t Look for Investing Advice in the Media - 28th Nov 19
Why You Should Buy Trailer Park Stocks - 28th Nov 19
Will YouGov General Election Forecast 2019 be as Wrong as their REAL Forecast was for 2017? - 28th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Is the Market Sending a Crisis Era Signal on the Economy and Stock Market?

Stock-Markets / Stock Markets 2019 Jun 28, 2019 - 11:47 AM GMT

By: Troy_Bombardia


As the stock market continues to trend higher and Treasury yields continue to collapse, two groups of stocks are about to send crisis-era signals on the economy (according to Bloomberg). Today’s headlines:

  1. Crisis era signals
  2. Stocks continue to rally and Treasury yields continue to fall
  3. Citigroup Economic Surprise Index still deep in negative territory
  4. Gold’s sentiment extreme and volume
  5. Bonds sentiment extreme

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Crisis era signals

From Bloomberg:

The problem with “Russell:S&P ratio at its lowest since 2008” is that this ratio is not range-bound. Just because this ratio is at its lowest since 2008, does not mean “today is 2008 all over again”.

That’s why it’s better to use the ratio’s distance from a long term average instead of using this ratio’s absolute value.

The Russell:S&P and Dow Transportation:S&P ratios were both more than -7% below their 1 year averages as of yesterday. In the past, this was mostly bearish for the S&P 2 weeks – 3 months later…

And was mostly bearish for the Russell 2 weeks – 3 months later.

On the other hand, the Dow Transportation Average outperformed over the next 2 weeks – 3 months.

Overall, this is a short term bearish factor for the stock market, but today is not” like 2008 all over again”.

Stocks continue to rally and bond yields continue to fall

The S&P has rallied more than 20% over the past 6 months while the 10 year Treasury yield’s 6 month rate-of-change is less than -20%. There have been no shortage of market watchers claiming that this is “abnormal” or “unsustainable”.

While this is rare, it is not unprecedented. It has happened 4 other times. This is normally what happens after there is a slump in the stock market, followed by a big rally.

Here’s 1995:

Here’s 1986:

Here’s 1982:

Here’s 1970:

Citigroup Economic Surprise Index

The Citigroup Economic Surprise Index is still deep in negative territory.

This index has been negative for 91 consecutive days, and considering how low the Index is right now, will probably remain negative for the next few weeks.

This index is mean reverting. Here’s what happens next to the S&P 500 when the index has been negative for 91 consecutive days.

While not always immediately bullish, this is mostly bullish 1 year later.

Gold sentiment and volume

The Daily Sentiment Index is a popular sentiment indicator followed by many traders. Nothing moves sentiment like price. Gold spike = Daily Sentiment Index is also extremely high.

Is this bearish? Here’s what happens next to gold when its DSI (Daily Sentiment Index) exceeds 95

Bearish for gold 2/3 of the time 2 months later, with an average maximum drawdown of -5.66%

However, I would like to caution traders in thinking that such high sentiment is immediately bearish for gold. The short term is extremely hard to predict, especially when a spike captures momentum traders’ imagination. The market can always remain irrational longer than you can stay solvent.

Here’s a stat to prove that the short term is not a sure thing. GLD’s volume spiked today. Volume spikes tend to occur when the market is crashing. It doesn’t often happen during an uptrend, unless the market is surging (i.e. right now).

Here’s what happens next to gold when GLD’s volume is more than 200% greater than its 50 day average, when gold went up today.

1 week forward returns are more bullish than random. The short term is always extremely hard to predict.

Bonds sentiment

Market participants are extremely bullish on bonds. The 1 month average for bonds’ Daily Sentiment Index now exceeds 87.

Here’s what happens next to the 10 year Treasury yield when the 1 month average exceeds 87.

Mostly bullish for yields (and bearish for bond prices) 6-9 months later, which is what you would expect given such high sentiment. Is this consistently bullish or bearish for the S&P?

We don’t use our discretionary outlook for trading. We use our quantitative trading models because they are end-to-end systems that tell you how to trade ALL THE TIME, even when our discretionary outlook is mixed. Members can see our model’s latest trades here updated in real-time.


Here is our discretionary market outlook:

  1. Long term: risk:reward is not bullish. In a most optimistic scenario, the bull market probably has 1 year left.
  2. Medium term (next 6-9 months): most market studies are bullish.
  3. Short term (next 1-3 months) market studies are mixed.
  4. We focus on the medium-long term.

Goldman Sachs’ Bull/Bear Indicator demonstrates that risk:reward does favor long term bears.

Click here for more market analysis

Here’s what happens next to the S&P when lumber rallies above its 50 week moving

By Troy Bombardia

I’m Troy Bombardia, the author behind I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2019 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Troy Bombardia Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules