Displaying items by tag: bears

(New York)

Don’t be fooled by this rally. Many research analysts, including those at Citi, say that this big rise in markets is not being driven by bulls, but by bears. One of the odd parts of these gains has been that money has been continuously flowing out of equity funds since March, but prices have risen despite that. The reason why may be that instead of bulls buying stocks, the gains have been driven by short-sellers buying back short positions they opened at the start of COVID.

FINSUM: This is good, simple analysis from Citi. Their additional comment could not have summed it up better: “From here, a move higher will need new longs and inflows”.

(New York)

There are a lot of reasons to be bearish on stocks right now. Aside from worries about rates and a recession, there is the big issue of a potential trade war to consider. However, there is at least one reason to be optimistic—the overall pessimism of investors. In one of the classic contra indicators, contrarians often see market pessimism as a strong buy signal. Investor sentiment has abruptly swung from very bullish to strongly bearish, with negative sentiment its highest in seven months. A strategist at BNP Paribas commented that ““There’s more of an extreme fear reaction now … As a contrarian indicator, that makes me actually bullish”.

FINSUM: We don’t think this signal means anything other than investors are afraid of rates rising, a recession, and a trade war. Since all of those things could come true regardless of how investors feel about stocks, we don’t believe there is much significance to this.