Research Summary
The report discusses the current state of the market, focusing on short-term divergences, positioning updates, consensus inflation calls, and the potential for a bullish turn in the agriculture sector. It also highlights the positive seasonality in crude oil and the potential bottom call on a major agriculture name, Bunge (BG).
Key Takeaways
Market Trends and Divergences
- Primary Bull Trend: Despite short-term divergences, the report suggests that we are in a primary bull trend. The aggregate market internals indicator shows that this trend remains healthy. However, any pullback or consolidation should not be met with an overly bearish reaction.
- Qs vs SPY Underperformance: The report notes that Qs vs SPY (orange line) are underperforming, which could indicate a period of consolidation or downside retracement if the divergence continues.
Positioning and Sentiment
- Neutral Long-Term Sentiment: The percentile rank of global fund manager sentiment shows that long-term sentiment and positioning are neutral. The report suggests watching how much positioning and sentiment react to an eventual correction to gauge the remaining potential of the larger uptrend.
- Crowded Bullish Sentiment in Dow: The Dow is identified as a potential shorting opportunity due to crowded bullish positioning and sentiment. Recent highs provide a tight inflection point for a stop and a chance to get size on for a cheap hedge.
Crude Oil and Agriculture
- Positive Seasonality in Crude: The report highlights the start of crude oil’s strongest period of seasonality, backed by crowded bearish positioning and sentiment. A model predicts an end-of-quarter price target in the mid $80s for crude.
- Bullish on Agriculture: The report suggests a bullish turn in the agriculture sector, with a focus on Bunge (BG), a global agriculture conglomerate. The company’s stock is down ~20% from its recent highs and failed to break below the 200MA on the weekly chart, indicating potential for growth.
Equity-to-Money Market Ratio
- Shift in Equity-to-Money Market Ratio: The report notes a shift in the equity-to-money market ratio deviation from its 4-month average, which has historically occurred after corrections and bear markets. This shift is seen as a positive sign for the S&P 500, which has been higher 100% of the time over the subsequent nine months following such a shift.
Actionable Insights
- Monitor Market Divergences: Keep an eye on the performance of Qs vs SPY as continued divergence could indicate a period of consolidation or downside retracement.
- Assess Dow Positioning: Consider the crowded bullish sentiment in the Dow as a potential shorting opportunity, using recent highs as a tight inflection point for a stop.
- Consider Crude Oil Seasonality: Take into account the positive seasonality in crude oil and the potential for price growth by the end of the quarter.
- Explore Agriculture Sector: Research the potential for a bullish turn in the agriculture sector, particularly focusing on companies like Bunge (BG) that have shown resilience despite recent market downturns.
- Track Equity-to-Money Market Ratio: Monitor the shift in the equity-to-money market ratio deviation from its 4-month average as it could indicate a positive outlook for the S&P 500.
