Mike Wilson — hailed across Finance Twitter as “Wall Street’s most bearish analyst” — says there’s one big risk out there for investors…
“The macro and micro economic data continue to deteriorate,” Morgan Stanley’s chief investment officer wrote, pointing to weak durable goods orders, disappointing capital spending, soggy retail earnings, lackluster freight shipments, and a “very soft” jobs number as evidence of an economy running on fumes.
Don’t be so quick to blame U.S.-China trade tensions, either, he said. “The economy was already slowing and escalation potentially makes things worse.”
And if you’re waiting for a lower interest rates to ignite a rally… don’t.
“A rate cut after a long hiking cycle tends to be negative for stocks, in contrast to a pause like in January, which is typically positive,” Wilson said.
The Commitments of Traders (COT) is a weekly market report issued by the Commodity Futures Trading Commission (CFTC) listing the positions held by commercial traders and the “Smart Money”, the hedge funds and bank institutions in various futures markets in the United States. Since the COT measures the net long and short positions held by speculative traders and commercial traders, it is a great resource to gauge sentiment in the Markets.
Everyone knows at some point, the Equity Markets will turn South for the long haul. Some have tried to short it like me in 2018, but the Markets remain resilient. Thus, in addition to looking at the charts, I’m going to look at what the Smart Money is doing from a quantitative standpoint.
There is still room for the Smart Money to be bullish as sentiment is around 70% at this time.
So what I will be paying attention to for clues regarding the Markets turning South definitively is when the Smart Money Net Positions stay below -50,000 for quite some time.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.