There won’t be a letter Thursday and Friday as we start celebrating the Jewish New Year tonight.
S2N Spotlight
The next chart was inspired by Deutsche Bank but has my fingerprints. The idea is to look back 1 year on a rolling weekly basis and count how many of the weeks in the one-year window are positive. I then mark all times when it hits 35x or 67% and place a red marker on both plots to make it easier to visualise. I am not sure how good a market timer it is; I will need to run a backtest when I have more time.
S2N Observations
Non-dealers are all investors, excluding market makers. According to Goldman Sachs, we are at a record net long US Equity Futures. Remember, reversals come at extremes.
The next chart I replicated, hat tip: Marlin Capital. The title explains the research: we are at the highest valuation at the start of a rate cutting cycle. You decide how you think it will play out.
A well-known market commentator looking for an extreme stat even when it doesn’t exist put a chart out stating that the ISM PMI has only ever had 2 times when the reading was below 50, 22 out of 23 months. I added his stat on the chart. Both times led to a recession. To me, that felt like a fudge; how can you just ignore the 1 time it was positive? What if it was in the middle? The current streak of 16 months is only the 3rd most extreme streak at 16 months.
With Iran firing over 180 ballistic missiles at Israel yesterday, oil did a major reversal. I have used average true range to measure the reversal extreme with oil moving more than $5.61. The 2.43% up move doesn’t do justice to the volatility of the day.
Performance Review
I notice my data vendor did not update the Hang Seng and Shanghai Exchange data from Monday.
For those who are new to the letter, the shading is Z-Score adjusted so that only moves bigger than usual for the symbol are highlighted.