New developments have lifted sentiment toward oil and Energy names, but we caution bottom-fishers to be mindful of risks. The fundamentals in the oil patch do not yet support strong oil prices going forward.
This month’s “Of Special Interest” allots eight pages to the (opposition) view that the correction is over, featuring charts we find the most threatening to our bearish stance. Based on its sudden popularity among the press and punditry, the indicator in this chart—highlighting the air-pocket in investor confidence—perhaps should have been part of that feature. Here’s why it wasn’t.
The U.S. stock market has largely shrugged off the latest round of worries related to China’s stock market collapse, the new down-leg in crude oil, a more hawkish tone in Fed-speak, and sizable second-quarter declines in S&P 500 sales and earnings.
The Volume Oscillator discussed in this section is one of several encouraging developments within our Attitudinal work that has sent that category to its least negative reading (-57, Chart 1) since July 2013.
Last year will certainly go down as the bull market year in which investors were finally retrained (as they usually are, late in every bull market) to buy the dips. Most of our Attitudinal measures—ranging from option activity and bear fund assets, to surveys of investor sentiment—show retail investors finally shaking off the worry that gripped them for most of the bull market’s first five years.
We’ve been negative on industrial commodities for some time, reflecting the persistently (and unsustainably) high levels of investment evidenced by our Global Group analyses of commodity-oriented industries.