A tradeable bottom?/FOMC/Other

If what we’ve seen over the past few weeks is the beginning of a correction of some sort more than what’s been seen already, we need a further cooling of bullish sentiment and we’re just not there yet as measured by last week’s II numbers and the updated Citi Panic/Euphoria index. Within II, Bulls are still at around 60 at 59.5 while Bears are around 16. A spread of more than 40 is not what bottoms are made of. And, here is a chart of the Citi index where .41 is the Euphoria threshold. I’m surprised it’s not down more. 

Evidence of the newbies that are now trading stocks in their Robinhood accounts that apparently weren’t around in the month of March, I found this quote in the weekend WSJ from some 31 yr old: “As someone new to the stock market, I didn’t realize it could hit periods where you have a pullback like this.” This belief even after the 30%+ decline in a few weeks in March. I guess the best tuition paid on a market education is the money lost in one’s trading account.

The FOMC meeting on Wednesday will be the obvious focus this week and after what Powell said in his Jackson Hole speech, I’m not sure we’ll see anything really new. I’m guessing there is a possibility they announce a change in the complexion of their QE buying. The Fed now owns about 1/3 of the entire agency MBS market, behaving like the BoJ, and maybe they will start buying less MBS and more Treasuries where they are currently buying about $80b of Treasuries per month. With rates where they are and the growing likelihood of a workable vaccine coming soon, they shouldn’t be buying any or at least much less I believe. But we know any foot off the pedal, however slight, is not something they are thinking about thinking about.

The only thing of note overseas was the Bank of France’s business sentiment index for August which jumped to 106 from 99. The estimate was 100. The internals though were mixed. Industrial activity slowed from July but where strength was still seen in autos as inventories are rebuilt. Also, “Services sector activity continued to firm, but at a slower rate than the previous month. Growth was seen almost across the board, and particularly in the transport and temporary work sectors. Publishing and IT activities nevertheless lost ground.” Construction “remained buoyant.” The euro is higher but bond yields are lower as the ECB struggles with already having done so much with little ability to do more.

We also saw industrial production for the Euro area but it’s for July and it was about as expected with the m/o/m recovery continuing but activity still down 7.7% y/o/y after a 12% crop in June. Nothing market moving here.