Sentiment Snapshot: Technically Bearish

As a reminder, the weekly survey on Twitter asks respondents their views/positioning on equities and bonds based on whether their view is primarily driven by the “fundamentals” vs “technicals”. It’s important to keep that fact in mind as we go through the latest results.

Indeed, the latest results showed “technicals” net-sentiment dropping to the lowest point on record, and yet “fundamentals” sentiment was little changed on the week. My first impression is that this is entirely consistent with the idea that this is a sentiment/technicals driven correction against a still decent earnings/macro backdrop.

Of course the glass-half-empty folk will say that the fundamentals sentiment will be the next shoe to drop as that crowd capitulates. It brings the equity vs bond fundamental sentiment chart into focus, and the course of that chart could well dictate how this correction ends up playing out…

The key takeaways for investors from the latest sentiment survey results are:

-Overall equity sentiment took a dive to the bearish side this week.
-Sentiment on “technicals” reached a survey record low, yet “fundamentals” sentiment is holding up so far.
-The results seem consistent with the idea that this is a technical/sentiment driven correction against a still solid macro/fundamental backdrop.

1. Equity Sentiment: Well the latest survey results shows net-bullish sentiment crossing over to the bearish side once again, this time to the lowest point since August last year. The drive down in sentiment is consistent with the sharp fall in prices on the week, and reflects a heavy noise/news week, where threats were traded about tariffs in an apparent trade war/skirmish, and the Fed continued its hiking path. All else equal, when sentiment crosses to the bearish side the odds of a rebound are typically elevated.

2. Fundamentals vs Technicals Sentiment: Getting into the detail, the split between “fundamentals” and “technicals” sentiment remains a fascinating juxtaposition. Technicals net-bulls actually dropped to the lowest point on record (albeit note the survey only commenced in July 2016). In truth, as noted in the Weekly S&P500 #ChartStorm, some aspects on the technicals front have deteriorated, although personally I would not say that it is unambiguously bearish as the 200dma is still holding and several indicators look oversold. Anyway the results are what they are. Interestingly fundamentals sentiment is still holding up…

3. Bonds vs Equities Fundamental Sentiment: On the topic of fundamentals sentiment, I keep coming back to this chart which shows equity fundamental net-bulls do appear to be faltering, at least consolidating if not rolling over. If equities fundamental sentiment does rollover it would be consistent with the apparent turnaround in bond market fundamentals sentiment, which has been diverging vs equity sentiment. It would I guess also be consistent with the softening in the PMIs which we have seen in the last two months, yet aside from that, most of the evidence I see still points to a positive growth outlook for the global economy. Anyway, one to keep an eye on!