The longest bearish streak amongst retail investors in 30 years.

Each week, (for over 30 years) the American Association of Individual Investors conducts a simple survey amongst their members, asking if they are Bullish, Bearish or Neutral about the stockmarket over the next 6 months.

The pre-cursor article to this post can be found here.

I’ll argue that in moments of crisis or shock, the majority of respondents in such surveys are often on the wrong side of the market. In other words, when retail investors are “losing their heads”, they tend to take the opposite stance to the facts and then don’t change their mind until sentiment reaches the other end of the pendulum.

Today, this survey is experiencing its longest unbroken sentiment where bears have outnumbered the bulls, since July 1990. Back then, the bearish majority survey trend lasted 30 weeks (until February 1991) during which the S&P 500 rose approx. 15%.

The current bearish majority has been in force for 31 weeks (since the last day of February 2020) and the S&P has risen 40%.

Last week’s survey is the narrowest we have seen the bulls to becoming the majority in the weekly poll.

So, after a 40% return, we may start seeing more of the individual investors in the AAII Sentiment Survey, becoming bullish, than bearish.

Have a think about that for a moment.

October 12, 2020
by Rob Zdravevski

All taken too early…..

With news that one of our portfolio stocks, Link Administration (LNK.ASX) received a takeover bid (from Pacific Equity Partners and Carlyle Group) for A$2.8 billion, I am reinforced by the large amount of capital scouring the world for investment opportunities.

Link’s stock price rose 24% today.

This type of good news is often more frustrating that rewarding as it reminds me of the other ASX listed stocks (which client portfolios have owned) whom have been ‘taken’ far too young.

Some of those companies were SAI Global, Mantra Group, Goodman Fielder, Scottish Pacific, APN Outdoor, Healthscope, Toll Holdings and AWE.

After all, it is the business of private equity and the like, to buy companies ‘early’ to they can improve them (see ‘dress up’) and on-sell them either in a new IPO or as a trade sale.

Look out for some of these names re-appearing on the market in a coming IPO wave which I’ll call “re-equitisation”.

October 12, 2020
by Rob Zdravevski

Low Bitcoin volatility leads to a violent move

I am studying Bitcoin volatility and have found that the its 30 day historical volatility has fallen to its lowest level in my 10 years of data.

6 out of 7 times when its fallen to similar levels Bitcoin has rallied notably.

Last night, Bitcoin rose 3% or $300. It is currently trading at $10,878.

And Bitcoin’s correlation to the S&P 500 is ‘growing’.

The weekly chart below paints a clearer picture.

October 9, 2020
by Rob Zdravevski

Illustrating De-equitisation

In August 2020, there were 1,891 * companies listed on the Australian Stock Exchange (ASX), the lowest amount since May 2007.

Which is 7% less from the 2,026 record high of February 2018.

This figure would be drastically lower if we exclude over 200 ETF’s and 100 Listed Investment Companies (LIC’s).

And what if we consider the 1,324 listed entities (61% of the total*) with markets caps below $100 million ?

One-third (733) of the companies have market capitalisations below $25 million)

Incidentally, the lowest amount of companies listed over the past 18 years was 1,341 companies which was in March 2002, which is when my data ends.

The de-equitisation story is intact and made acute when an enormous amount of money is chasing fewer opportunities.

And Australia has the world’s 4th largest pension system with $2.1 trillion in savings.

Albeit, fiduciaries and managers in the superannuation world do allocate them globally, home currency bias and local currency obligations does favour a steady flow towards the ASX.

* there are 2,167 listed entities in total which includes foreign equity issuers including those comprising a stapled group along with wholesale & retail debt issuers.

October 9, 2020
by Rob Zdravevski

More Mid Cap happiness

My recent writings (publicly and separately to clients) about the Nasdaq being at extremes, the overweight (an over reliance) on the top 5-8 stocks in that index and investors paying for “growth or revenue at any price”, ultimately lead to commentary about allocating monies in mid cap stocks and especially as I stick with my bottom-up fundamental value and contrarian based investing style.

Whilst short-term news about relative outperformance and phrases involving “style or sector rotation” can irk me…

the S&P 400 Mid Cap and the Russell 2000 index have both soared 13.5% since their September 24, 2020 lows,

while the S&P 500 and the Nasdaq 100 have climbed 7.3% and 8.1% respectively.

Of course, we’ll take any of those returns any fortnight of the year,

but the movement of money away from expensive (growth with zero earnings) towards cheap (companies with actual profit) isn’t the most radical suggestion I have made.

October 9, 2020

by Rob Zdravevski


A good bounce for now

In the linked post below, I signalled that my various equity index targets were reached.

For the ASX 200, I was calling a retracement to 5,803. On that day (September 22, 2020) it traded to 5,763.

12 days onwards, the ASX 200 has risen 5% and it’s now trading at nearly 3 standard deviations above its daily mean.

It’s not a time to add to holdings today.

Be patient !

October 8, 2020
by Rob Zdravevski

Oil Rigs…going cheap !

This is the lowest amount of oil rigs in operation within the United States since……”like ever”.

For the Oil, Gas and Statistic nerds – Scroll through the historical data in this link and you’ll be quite amazed.

Do you know what is currently going cheap in the world ?

Buying or renting an oil rig……

October 8, 2020

by Rob Zdravevski

Are they “natural buyers” ?

Gold ETFs now make up 35 per cent of global gold demand compared with just 8 per cent a decade ago.

October 8, 2020
By Rob Zdravevski

Anticipating a Country Rotation

Last week I wrote about my two best Equity Index ideas.

Buy the U.K.’s FTSE 100 and Spain’s IBEX 35.

I wanted to attach some better charts showing the monumental extremes of an index being oversold, not on a daily or weekly terms, but on a Monthly basis.

Because we’re looking at them on a Monthly view, we’re not about to trade out this position next month.

When you’re a buyer of securities at such extremes, you’ve got to give yourself 10% of price movement. After all, in the case of the IBEX, I’m looking for a 45% rise over the next 2-3 years as the index means revert towards its 200 day moving average, which is currently 10,000.

October 7, 2020
by Rob Zdravevski

Coffee filled the gap

Hello coffee lovers !

On Friday night, 2nd chance to buy coffee at $1.05 happened.

Arabica Coffee futures traded to $1.0490.

Will keep you posted how it turns out.

Rule # 1: Be sure to roll over your futures contract otherwise you’ll need a lot of room if you accidentally take physical delivery.

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