JPMorgan: "Global Market Momentum Just Hit Extreme Levels; Profit-Taking Imminent"

On Friday  we showed that according to the latest fund flow data, anecdotal speculation of a marketwide melt-up was indeed the case. As a reminder, earlier in the week, we discussed how  market optimism among both professional and retail investors had hit the highest level since just before the crash of 1987...


... with a recent E-Trade survey disclosed  that 8 out of 10 retail investors - the highest on record - were certain that stocks would continue to rise in Q1. Then, BofA calculated  that the 4-week inflows into equities was not only "thundering", it was the largest ever. This is the result of a massive $23.9bn weekly inflow into equities which brings the 4-week inflow to stocks to the biggest ever, $58bn as shown in the below...


and there was even some good news for active managers: the 4-week inflows to active equity funds was at a 4-year high, although the relentless market share theft by ETFs is unlikely to change any time soon, and certainly not if the market keeps levitating with virtually no volatility.

Also on Friday the S&P's Relative Strength Indicator rose to a new all time high, suggesting that as of this moment, the US stock market is the most overbought ever.



Now it's JPMorgan's turn to opine on recent market euphoria, which - in the aptly named weekly "Flows and Liquidity" report, arguably JPM's most interesting publication - it says that as of Friday, "momentum signals have reached extreme levels for the S&P" which to JPM's Nikolaos Panigirtzoglou suggests that "equities are vulnerable to near-term profit taking."

Why? JPM observes that after revisiting the bank's momentum-based indicators, shown in Tables A5 and A7 below which it uses to infer how CTAs and other momentum-based investors are positioned across various commodities as well as equity indices, US sectors, bond futures and currency pairs....


... JPM noted that "momentum was approaching extreme levels in the S&P 500, along with the Nikkei as well as crude oil futures."


The tables reveal, that in the just passed week, the continued strong momentum in risky asset prices saw the z-score of JPM's S&P signal triggering the mean reversion overlay on Thursday after pointing to longs for around a year and a half.

This means that at long last, the market "could be at levels where momentum-based investors would begin to take profit on their positions."

Additionally, the continued sell-off in bond markets has seen z-scores for US Treasury futures shift further into negative territory, "but they remain some way away from extreme levels." Finally, for oil, momentum retraced some of the recent strong gains after Brent oil prices declined from a peak of just over $70 per barrel, though as Chart A39 in the Appendix shows speculative.

To recap: CTAs and other momentum-factor based investors are now at and beyond levels where they traditionally take profits. This could start happening as soon as next week, especially should the market be spooked by the uncertainty surrounding the government shutdown, which as Goldman said yesterday "could last a few weeks", and near the date of the US debt ceiling D-date, some time in early March, by which point stocks will really sell off if there still is no funding deal.


Richard640 The_Juggernaut Sun, 01/21/2018 - 08:52 Permalink


WERE THIS 2010--THE cavalier pooh-poohing of  market cassandras would be appropriate

but this late in the game, the WOLF just may be at the door--there were plenty of bearish forecasts in 2006-7, and they finally turned out to be right--investors intelligence had HIGH BEARISH READINGS JUST BEFORE THE CRASH..


The end is nigh, brother, the end is nigh! 


World markets are like a pie crust stretched across the roof of a volcano!


Fu Manchu is about to pull the lever to the trap door!


Warbucks signals the trusty  Punjab to cut the cords of the rope bridge!


Grease the skids! Happy tobogganing!

In reply to by The_Juggernaut

Ink Pusher Sat, 01/20/2018 - 14:47 Permalink

"Reflexes had got the better of me
And what is to be must be:
Every day the bucket a-go to a well,
One day, the bottom a-go drop out.
Yes ,One day, the bottom will drop out."

~Bob Marley

I say; The smart money will get out of all the paper now and move into hard assets all the way to Q3 and possibly beyond. Metals are due for another hop while Oil is due for a reckoning encased in reality by Q3. 

Q2 is going to be a VIX party this year.

Kinda funny watching all of these greedy fucks playing the long game all hedging that they are going to live long enough to see a profit.

Bondosaurus Rex Sat, 01/20/2018 - 15:31 Permalink

Everything goes straight up and is fine right Bitcoin babies????....uh I mean Florida real estate guys?....guys?......No I meant beanie babies....anyone??? I meant tech stocks...Wang?Yahoo?...where did they go?...I know! Right Bank Of America and Wamu........?

ilovetexas Sat, 01/20/2018 - 16:28 Permalink

Bullshit! Extreme can become extremer, and then extremest, until JP says it's undervalued or this is a new norm or any bullshit like that. Then it pops!

adolphz Sat, 01/20/2018 - 16:57 Permalink

This is the funniest headline I am choking.  This article is fromm2012   the educated on zero hedge cannot be fooled.


Nice try. 


So far as I have been tracking the SHEPWAVE traders on Zerohedge are batting 1000 on stawks gold and oil. Keep it up. 

JailBanksters Sat, 01/20/2018 - 20:06 Permalink

But the only ones invested in the market are Banks, and so many Banks are owned by other Banks. So any profits to be stolen by the Pump & Dump methods, they will be stealing their own money.

That's the main reason it won't pop, there's nothing to steal.

Let it Go Sat, 01/20/2018 - 21:44 Permalink

During the last two and a half years central banks and countries around the world have added more fuel to the fire which has postponed the day of reckoning. This has made all of us thinking the market was about to turn south looking rather silly and underlines the fact that trying to time events is both confusing and complex, this is especially true when it comes to the financial part of our lives.

When it comes to economics, this means it is best not to have a great deal of faith in our economic system which is severely flawed. Central banks can stack the deck but when it gets too high and begins to fall they may not be able to control the direction or who it will crush. The article below explores the idea that thinking the economy will adjust and grow its way out of many problems we have tried so hard to ignore deifies what history has taught us.

 http://Hard-landing Scenario Remains Very Possible.html