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Sentiment 02/2018

Last month, in this section, we provided the parameters to identify the first alert signals in the stock market trend, after the  February’s  correction.

The SP500's index corrective phase , which we always consider the benchmark of all share indexes, was interrupted on the first level of support at 2567. On this level, with a very technical market , a prompt reaction was triggered, reporting the index to recover 50% of the descent phase.

We therefore witnessed a bearish spike that "cleaned up" the market from last-minute investors.

A further confirmation is given  by our "Sentiment" indicator which has reached a neutrality phase after having scored absolute confidence levels; typical reaction due to the excesses of the last months.

The doubt at this point is to understand if we have to wait for new increases or the beginning of a new corrective phase.

We try to respond with the help of our indicators.

The first condition that must be achieved is the keeping of the level of 2360 pts of SP500,  watershed between continuation of the bullish phase and the beginning of the bearish one. We have already said of the phase of neutrality of the Sentiment that guarantees, at least , the cleaning of the retail buyers.

From the other two of our indicators - Participation in global stock exchanges and US Macro - no signs of reversal with the US Macro which recovers from the weakness phase recorded in January.

Let's see what could be the disturbing elements: the tariff war and the yield of Tbond 10yr.

The first one is just beginning and therefore it is premature to talk about it but normally the effects on the markets are negative. For the yield we approached the alert threshold that we indicated at 3% without exceeding it. It is evident the importance of this element as a measure both the expectations on inflation and the role it plays as a refuge in the event of tension on the markets.

Giorgio Giovannoni