Morning Notes — Internal and Cross-Market Indicators

Sectors: The preference for value sectors continues with the S&P 500 Value Index (SVX) up +10.47% since October 1 vs. the S&P 500 Growth Index (SGX) up +4.78%.  While there’s been no ‘rotation’ out of growth, there has been some ‘rotation’ from momentum stocks with the Bloomberg US Pure Momentum Index (PMOMENUS) down ~5% from its 10/13 peak.  The index is little changed week over week, generating questions over whether the pain from hedge fund ‘de-grossing’ of the momentum factor is over.  Last week, we mentioned how prior episodes of de-grossing/unwinding of momentum saw the PMOMENUS Index contract ~7-8% and we see no reason to expect anything less than that now.  Many momentum names have made their way to short-term oversold status, but we expect them to remain there a while longer.

SPX: The S&P 500 is beyond technical resistance of ~3581, which was the old high.  There’s currently no overhead supply and currently no reason why the index can’t push higher in the near-term.  Last week’s AAII survey resulted in a bullish sentiment reading of 55.84, second only to a record of 59.75 made on January 4, 2018. On January 29, 2018, the S&P 500 started a ~12% correction lasting 10 sessions.  By itself, extreme bullish sentiment isn’t a call to action, but it makes the index far more susceptible to hitting air pockets. We usually get an internal or cross-market indicator a few week/days ahead of time that serves as a call to action.