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Sentiment of Banks and Seasonal Factors

Fiala Petr
Published: 4.6.2014 | Last modification: 4.6.2014 03:16  | Comments: none
I have prepared three charts that show typical sesonality of stocks, the third one is derived from COT data issued by CFTC ( US Commodity Futures Trading Commission).

I personally find seasonal factors as very important. I think that people are more and more using these data. Probably all heard „SELL IN MAY AND GO AWAY“.    

First chart is an average of only two years – 2000 and 2007 -   thus of the last years of the previous two bull markets. Current year starts to remind me both 2000 and 2007. The bull market that started in 2009 is now aproximatelly as long as those previous. Stock indexes are reaching all time high almost every day, we haven´t seen deep correction since 2011. Market sentiment is strongly skewed towards optimism, speculants do not respond to bad news at all ( they have ignored information regarding US GDP in the first Q/2014 ( -1%).  

Chart: Seasonal chart – average of the years 2000+2007. It seems to me that current development is very similar to this one in the upper panel of this chart. Should it continue like this, the month June could   be rather a bad month and July could be strong. The critical decline could appear in August. 

Chart: Typical development in the period of 1998-2012 – as you can see, this seasonal chart is very similar the previous one. June is just bad month for stocks, but July is strong until 23   July.

What is the sentiment of the investment banks

The banks are key factor for the stock indexes. They move the markets. If they are bearish then who is buying? Speculants. It is a   fact that the banks were almost always on the right side of the market, unlike speculators.      The proof for this lies just in the COT reports.   And that is the reason why to study the sentiment of the banks.


Chart: Net Short positions of the banks ( Commercials) for four futures contracts ( Nasdaq 100, DJIA, S&P 500, Russel 2000). Net Short means SHORTS minus LONGS. Oscillators are calculated for 40 weeks. The higher the value of the oscillator, the more Net Short positions exist   at the moment ( the banks are hedging against declines). Also the opposite pays. The lower the oscillators, the less short positions is held by banks.    Short positions of the banks are at lows right now, if we take into account last 40 weeks. Regarding absolute values of Net Short positions, then we are at similar values as we were in March 2011. However there is one difference. While now the amount of shorts has had a declining tendency, it was raising in 2011.   This is the situation when speculants are forced tu cover their short positions as they find out that they are on the wrong side of the market. And that is partially the engine of the current rise in prices of assets. I would make one conclusion from this – the current situation is not quite bearish. In fact it is rather bullish.    

What conclusions can be done

June is rather bad month for stocks, however the sentiment of the banks is bullish. Therefore I think that every decline is going to be bought again and stock indices will go sideways until July. Next market peak could occur by the end of Jully.

There is also a possibility that the sentiment of the banks will change over the next few weeks.     

Finally I have prepared one interesting chart. This charts shows where we are in the current uptrend. We have created a  special index made of five ETFs.

Chart: ETF index - multiple timeframes ( 30 min +60 min) - you can easily see a wave structure. There are regurarly occurring two price peaks and two oscillator peaks. The second price peak is not manifested through the new highs of the oscillators.  The first peak is behind us and now we can expect the second one within a next few days (1-2 weeks).


Petr Fiala

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