Model switches to CASH/NEUTRAL. Rates will likely remain higher for longer but liquidity via stealth QE will remain an important factor in guiding markets potentially higher so will be closely monitored. Currently, global liquidity is in an uptrend once again (yellow line). Since the BTFP was launched in mid-March 2023, major stock market indices have been resistant to downtrends even when global liquidity was in a downtrend such as from April to September 2023. Much FOMO froth exists which can push the uptrend also higher for longer than expected while utility from AI is unprecedented in terms of the impact it is having on the profitability of companies.
However, the bank term funding program (BTFP) ends today. Going forward, this is likely to increase banks' borrowing costs, meaning their profit margins will fall. They might react with higher lending rates or by making less credit available to customers, potentially weakening the economy.
AAII Sentiment survey had another peak at 51.7% as of last Wednesday. It comes out with new data each Wednesday.
We also had a high volume reversal on market leader NVDA after a semi-climactic move higher while a number of AI-meme stocks that have been hit prior to Friday. Advanced Micro Devices (AMD), Arm Holdings (ARM), and Super Micro Computer (SMCI) among others also all sold off hard on Friday. Both the S&P 500 and NASDAQ Composite had outside reversals on higher volume Friday.
The number of distribution days on the NASDAQ Composite have clustered over the last rolling 20-day period which put the model on a sell signal standby on Fri. Now that it has broken below the low of Fri, a sell signal is in effect.
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