March 8, 2017

The Rising

Can’t see nothing in front of me. Can’t see nothing coming up behind. 

Those of you who know me know I would never write “can’t see nothing.” But Bruce Springsteen can get away with it.

He and the E Street Band put out the eponymous album on July 30, 2002, and it was appropriate for the stock market as the S&P 500 bottomed October 4, 2002 at 800 and proceeded with The Rising, traveling steadily upward to 1,561 by October 12, 2007. 

We didn’t return until Mar 2013, taking longer to get back than to arrive in the first place.

Now we’ve had variations on a Rising theme for eight years. The market bottomed this week in 2009, on Mar 6, at 683 for the S&P 500, lower than when our troubadour from Long Branch, NJ first commanded in gravel and guitar that we come on up for the rising.   

As with the last lyric in Bruce the Bard’s melody, it’s on wheels of fire that we’ve come rolling down here to 2017 in the stock market, blistering records and burning up the tape. 

We at ModernIR study equity data in our inimitable way, the cross of our calling, Bruce might say.  And that’s all the poetry I can muster.  But I’ve got some facts.

We measure Sentiment on a purely mathematical basis, tracking how the four big reasons people buy and sell interact with market prices and where these wax and wane.

We’re good at capturing short-term asset-price changes. We’ve been doing it for a long time. Our five-day forecasts are roughly 95% correlated to the actual average prices for stocks after the five projected days have elapsed – statistically interchangeable.  

Putting it in English, in short spans we can foretell the future, using math, because the money in the market is using math in ways we can observe with precision. 

Here’s what we know about market Sentiment and short-term prices. For 77 consecutive days now, back to Nov 14, 2016, the stock market has been about 5.0 or higher on our 10-point Sentiment Index.  Since June 2012, some 1,200 trading days, 715 have been 5.0 or higher. It’s been a bull market.  But ten percent are in a row since the election. 

Remarkable. (Aside: If you want to kick this around, catch me Friday at the NIRI Silicon Valley Spring Seminar.)

To our knowledge, the previous record for extended neutral or better Sentiment without a single tip to negative was 53 days, from Feb 22 to May 6 last year.  Back in 2013 when we had a momentum stock market, our Sentiment gauge would carom from below 4.0 to over 9.0 – a rocking Richter event – about every month. 

Here’s the thing:  When last year’s epic Sentiment run concluded in May, we were never able to rise sustainably again – until November. It required an extraordinary catalyst in the form of the Wildly Unexpected Donald Trump. The S&P 500 finished October 2016 lower than it wrapped May 2016. Even with another massive catalyst, the Brexit Boomerang, between. 

This is not scientific. It’s not fundamental. It’s not a factor model. But it IS mathematical, and it does reflect how money behaves today. Here’s my conclusion: Without an extraordinary event, a catalyst, when this long Sentiment run atop 5.0 stops, it will mark the end of this particular bull market. 

What’s a real-world application for investor-relations people? We track Sentiment for you.  When you’re Overbought your price will fall, absent a catalyst. When you’re Oversold, barring a tsunami, your shares will rise. It’s not rational. It’s math.  

You can use this data to your advantage.  When you’re a 10, call a couple of your good value holders to check in, because you’re likely to dip, and if your holder buys (you will be on their minds), you might revert to 5.0 quicker – and 5.0 stocks are the bedrock of solid investment portfolios. 

And vice versa. You’re 1.0?  Pick up the phone. The first investor to buy probably makes money (and will remember to look when next you call) and you’ll return to 5.0. It’s not what you say. It’s that you call that counts. Put yourself on the screen.

Won’t that work for the market? Sure.  At Feb 11 last year, the market was a 1.0/10.0. Great time to buy, turned out.  It was a Rising. 

We don’t know what’s ahead. Don’t know what’s coming up behind. But the math says we’ve had it good for a record stretch. It’s hard to keep setting records. 

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