Yesterday’s retest of the intraday high of November 9th, the day of the Pfizer vaccine news, brought with it a lot of market ebullience as measured by the CNN Fear/Greed index which closed at 88, ‘Extreme Greed’. //money.cnn.com/data/fear-and-greed/ . I can’t remember the last time I saw a 13 pt one day increase. This metric is not measuring how people feel but how they are actually behaving as it includes The McClellan Volume Summation Index which weighs market breadth, the extent over which the S&P 500 is above its 125 moving average, the spread in performance between stocks and bonds, the CBOE put/call ratio, the high/low list, credit spreads between IG and HY and finally the VIX vs its 50 day moving average. This contrasts with II and AAII which is just asking people how they feel. We’ll see the fresh II data today which I haven’t seen yet but it won’t include the action over the past few days.
The front month crude oil contract is finally peaking above its $35-45 trading range seen since late May and now sits at the highest level since early March. I remain bullish on it along with the entire commodity space with crude the last major component to now join the rally. I want to say this about gold which has gotten thrown out this week. It is NOT a safety trade. It should not be bought on geopolitical worries, it should not be sold if the world seems more sanguine. It is a currency, that’s it, that should only trade off the direction of fiat currencies, particularly the US dollar and real rates.
Jan 2021 Crude Oil contract
With another leg lower in mortgage rates to 2.92% on average, the MBA said purchase applications to buy a home rose 3.5% w/o/w and are up 19% y/o/y. This is the 2nd straight week with a similar gain after a stretch where they moderated for 6 weeks in 7. As home prices continue to climb and the mix skews towards the higher end, the average loan size rose to a fresh record high of $374,100. Affordability for the lower end continues to be an issue as what product of ANY kind can sustain annual price increases of 5%+ and still maintain the same level of demand? None no matter how easy the financing situation is. Refi’s were higher by 4.5% w/o/w and by 79% y/o/y.
Along with the economic rebound in China and the vaccine news, South Korea’s manufacturing sector confidence number from the Bank of Korea rose 5 pts m/o/m to 81, matching the highest since March 2018. The services index was up by 3 pts to the best since February. South Korea in particular has benefited from Samsung and its electronic exports along with the auto sector. The Kospi though did close down by .6% as notwithstanding the US market spike, Asian markets were much more mixed.
Have a great Thanksgiving holiday.