Sentiment Is Key At Tis Time Before The Election And Holidays

There is undoubtedly some sweat on the brow of investors and traders these days. If you've been a bull for most of 2020 you're probably in good shape, but should have one hand on the exit door.  If you're bearish or just stumbling into the party in late October, you are way behind the markets and are probably looking to make up ground quickly.

 

Clearly that is not the way to play it, but after the smashing the markets took in March of this year, who could blame anyone for being a bit more on the cautious side? Yet as we've said many times before, the Fed has created an environment that is friendly to equity traders/investors.

 

As Marty Zweig famously said more than 35 years ago, 'Don't fight the Fed'. But when we consider sentiment as the way investors feel about the market, it's showing more apathy than enthusiasm. How do we know this? Volatility still remains elevated, though that may be a condition from the upcoming election.

 

Investor surveys, insider buys/sells and put/call ratios and breadth indicators seem to say investors are not all that excited to put money in the markets. It seems odd but certainly understandable. With markets at/near all time highs and the economy not quite yet able to walk on its own, there is angst about investing. Sure, when the markets were swooning it might have seemed more reasonable to 'dip a toe' in the water.  But how about now?

 

As we have talked about in the past, when the wall of worry is up, as it seems to be right now, the markets tend to go against the crowd.  f that indication is fearful, nervous, worry or just plain scared - we often see markets rising against it (hence, wall of worry).

 

Even with markets higher as we head into the heaviest part of earnings season before the holidays, pay more attention to the price action and not what others are saying/feeling. It'll put you on the right side of history.