The Delta Market Sentiment Indicator has climbed from 50 percent to 64.2 percent over the past two weeks.  Last week, the Dow Jones Industrial Average closed above 15,000 for the first time ever and the S&P 500 has steadily been notching new record closing highs.

We have a wealth of bullish indicators including:

  • Transports are outperforming
  • Small and mid-cap stocks are outpacing larger cap stocks
  • The cyclical sectors have assumed the leadership position
  • U.S. banks’ willingness to make business loans jumped in the second quarter to a near-record high.  Their willingness to make consumer loans also advanced noticeably and remains at an elevated level.
  • Foreign markets are advancing
  • China’s economy is showing strength with a better-than-expected trade report
  • Germany reported stronger-than-expected industrial production (1.2% in March month over month versus a -0.1% estimate)
  • European Central Bank head Draghi is talking about less austerity

Fund flows into equity funds and ETFs were $2 billion in April.  Last April, the flow was negative $16 billion.  Positive flows into equities this year are not being fueled with money coming out of bond funds.  Flows into bond funds in April were a positive $16 billion.  So far, there is not rotation from bonds to stocks.  If the rotation does start, fund flows could be bullish for stocks for a multi-year period.

This morning, we are travelling to the Las Vegas MoneyShow.  The show runs from Tuesday through Thursday of this week.  If you are planning on attending the show (attendance is free – CaesarsPalace), you can find us at booth 512.  Please stop by and say hello.

Review of Positions

Positions Closed:

Healthcare Trust of America (HTA) – On February 13, we recommended you buy to open the HTA Jul 12.5 calls (HTA 130720C0000125000) for $0.45 or better.  On May 10, we recommended you close this position for $0.80 or better.

Liberty Interactive (LINTA) – On April 9, we recommended to buy to open the LINTA Jan 2014 22 calls for $1.55.  On May 10, we recommended you close this position for $2.40 or better.

Open Positions:

Charles Schwab (SCHW) – On March 7, we recommended to buy to open the SCHW Sep 18 Calls (SCHW130921C000018000) for $1.05 or less. As of Friday’s close, these options closed at $1.15.

Parting Shot: Market Sentiment Indicator

Shown below is our MSI (blue line) superimposed on the equal weighted S&P 500 measured by the ETF (RSP).   We are bullish on the stock market when the MSI is above the 50% mark and bearish when it is below.


The scale for the MSI is on the left hand y-axis.  The MSI has increased from 57.5% to 64.2% last week.  With the MSI bullish in the intermediate term, we recommend staying long.

Have a great week trading,

Nick Atkeson and Andrew Houghton
Big Money Options

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