Did Equity Market Volatility Pay Off? Risk-Appetite Has Returnrned

The nerves of equity market participants have certainly been tested over the last three months. Since last November, major U.S. indices have chopped up and down with above-average volatility… but, frustratingly, with little net movement.

Now, it seems newfound bullish sentiment is beginning to show in the form of higher prices. As I told Cycle 9 Alert subscribers yesterday, signs of investors’ bullishness abound.

For one, small-cap stocks (i.e. the Russell 2000) continue to outperform their large-cap cousins (S&P 500 and Dow). Here’s a chart that shows this bullish sentiment indicator…

Equity Markets Nerves on Edge

But there are several more indications of bullish sentiment re-emerging. Here are just a few:

  • The ratio of advancing stocks to declining stocks continues to climb. This index has now made a new high, breaking above the level we saw last September. Broad-based participation (i.e., a wide range of stocks trading higher) is a sign that a bullish trend has legs to run.
  • The ratio of consumer discretionary to consumer staples stocks continues to climb. This suggests investors are investing in higher risk, higher returnrn sectors instead of “defensive” sectors.
  • Many sectors have now broken to new price highs, including: materials (XLB), consumer discretionary (XLY), technology (XLK), health care (XLV) and industrials (XLI).

In total, these are all indicators that investors’ confidence and risk-appetite has returnrned. And as a bullish breakout has been in the works for a few weeks now, we’re starting to see this bullishness show in the form of higher prices.

I’ve had Cycle 9 Alert subscribers positioned in two bullish sectors for several weeks and we’re now reaping the rewards. I’ve also recently showed them how to make a low-risk play on the still-beleaguered energy sector.

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Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.