'Extreme Measures Of Sentiment': Stock Market Update For The Week Ahead

The Past Week, In A Nutshell

What Happened: In an extension of the sharp rotation out of safety on a sustained economic rebound after the COVID-19 coronavirus pandemic, stretched sentiment propelled stocks to record closing highs.

Remember This: “We are starting to see some extreme measures of sentiment, as cash levels are low and equity allocation is high,” said Michael Hartnett, a chief investment strategist at Bank of America.

This comes alongside a UBS note which suggests the S&P 500 may rise nearly 10% into the end of next year on a vaccine.

"That should help put Europe and the U.S. on the path to a sustained recovery," said UBS analysts. "If we are right, we expect corporate earnings to rebound quickly."

Pictured: Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures

Technical

After an initiative drive alongside news that provided clarity on the election transition, participants recovered the $3,580 balance-area boundary, invalidating the prior week’s selling activity. Afterward, conviction disappeared and the market remained range-bound, as evidenced by a non-participatory delta (i.e., the non-presence of committed buying) and mechanical trade (i.e., low-excess at the edges of developing balance).

Given that initiative buyers remain in control, participants come into Monday’s session knowing recent activity has been dominated by short-term, momentum-driven buying, sentiment is stretched, and cash levels are low.

Therefore, if participants manage to spend time and build value above the $3,631 micro-composite high-volume node, then the S&P 500 may confirm a multi-month balance-break. Otherwise, an initiative drive below the high-volume node would put the rally on hold.

Pictured: Daily candlestick chart of the cash S&P 500 Index

Fundamental

In a commentary, BlackRock Inc BLK upgraded its outlook on U.S. equities.

We upgrade U.S. equities to overweight, with a preference for quality large caps riding structural growth trends – as well as smaller companies geared to a potential cyclical upswing. We prefer to look through any near-term market volatility as Covid cases surge. Positive vaccine news reinforces our outlook for an accelerated restart during 2021, reducing risks of permanent economic scarring.

Simply put, BlackRock suggests an accelerated restart on structural growth trends and a cyclical upswing, as a result of positive COVID-19 coronavirus vaccine developments, could benefit the market during 2021.

Key Events

Monday: Pending Home Sales YoY.
Tuesday: Markit Manufacturing PMI Final, ISM Manufacturing PMI, Construction Spending MoM, Fed Chair Powell Testimony, ISM Manufacturing Prices, Fed Brainard Speech, Fed Daly Speech, Fed Evans Speech.
Wednesday: MBA Mortgage Applications, ADP Employment Change, Fed Quarles Speech, Fed Williams Speech, Fed Chair Powell Testimony, Fed Harker Speech, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, Fed Williams Speech, Fed Beige Book.
Thursday: Continuing Jobless Claims, Initial Jobless Claims, Jobless Claims 4-Week Average, ISM Non-Manufacturing Business Activity, Non-Manufacturing Employment, Non-Manufacturing New Orders, Non-Manufacturing PMI, Non-Manufacturing Prices.
Friday: Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings MoM, Average Hourly Earnings Mom and YoY, Average Weekly Hours, Balance of Trade, Nonfarm Payrolls Private, Participation Rate, Fed Evans Speech, Factory Orders MoM, Fed Bowman Speech.