Breadth thrust, energy sentiment

Breadth

The U.S. stock market rebounded sharply after a quick pullback. The NASDAQ Composite’s Up Issues ratio (% of stocks that went up on that day) exceeded 74% for 2 days in a row.

Historically, these breadth thrusts could lead to choppy short term trading. But after that, it almost always led to more gains over the next 3-12 months. More importantly, in the past few years this marked some major medium term bottoms:

One important thing to note here is that almost all the historical cases occurred within a bull market. So take this bullish stat with a grain of salt.

Energy sentiment

Energy prices have rallied after a horrendous collapse last March. The ongoing rally pushed gasoline’s Daily Sentiment Index to the highest level since 2019:

Historically, such elevated sentiment could lead to a quick pullback in crude oil prices over the next month:

Conclusion

  1. Short term trend followers should continue to ride the bull trend because no one knows exactly when it will end.
  2. Medium term traders should go neither long nor short.
  3. Long term investors should be highly defensive right now. This speculative bull market may last another 6 months or even 9 months, but in 2 years time, long term investors will be glad they did not buy today.

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