MW Some market signals aren't working like they used to. Here's the one to watch.

By Jamie Chisholm

Extreme drop in an investor sentiment survey is not reflected in stocks' recent pullback

A favorite aphorism of the late Art Cashin, Wall Street legend and UBS's long-serving director of floor operations at the NYSE, is that "no one rings a bell at the top of the market."

And of course, the same applies to the bottom. There was no clanging to be heard on that day in March 2009, when the S&P 500 SPX hit a low of 666 during the height of the global financial crisis.

Nevertheless, the market does regularly provide a batch of signals that traders normally can try and use as they attempt to address momentum shifts in financial assets and the economy.

The problem is, says Thomas Salopek, head of cross-asset systematic strategy at JPMorgan, many of those signals of late have not been working like they used to.

One of the most stark signal breakdowns in recent years was the inverted yield curve, which failed to predict a recession despite "the foolproof historical hit rate," Salopek observes in a note published Thursday, with the assistance of colleagues Sandra Djambazovska and Mengjiao Wang.

Of more immediate concern is the recent dramatic decline in the closely-watched American Association of Individual Investors bull/bear indicator. The lower it goes the more pessimistic investors have said they are - and dives often coincide with sharp market sell-off, signaling the opportunity for a rebound.

But Salopek says it "has exhibited very strange sentiment readings, on par or worse than many well-known crises, despite stocks being [only] modestly down."

"As such," he adds" this calls into question what would have been considered a very dependable bottoming signal for stocks, as peak negativity is a good time to buy stocks."

Salopek reckons the reason the AAII gauge has not provided a good contrarian bottoming signal this time is because it reflects sentiment toward mainly one portion of the market - previously high-flying technology stocks that have been hammered of late. He notes, for example, that JPMorgan's AI/Datacenter/Electrification Beneficiaries basket is down around 20% from the mid-Jan highs.

Other contrarian sentiment signals that traders should watch for are if the put/call option ratio spikes, which would signal investors moving sharply to protect portfolios, of if extremely high percentage of stocks are trading at four-week lows, which would points to technically oversold conditions.

But waiting for such measures to signal capitulation may mean investors miss out on a stock market rally. "Some selloffs are just not big enough to manifest the signs of a full 'washout'," says Salopek.

Currently making investors nervous is the CBOE VIX index VIX, a measure of expected S&P 500 volatility, which is holding near the 24 level when its long-run average is 19.5.

But Salopek still feels 'Wall Street's fear gauge,' as the VIX is known, is the signal that traders currently should be paying attention to.

"[W]hile the policy uncertainty keeps us nervous, in the absence of news, one should re-enter stocks as volatility rolls off highs," he says.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is holding near recent lows, while oil prices (CL.1) rise and gold (GC00) is trading around $2,899 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              5842.63    -1.90%  -3.61%  -0.66%  14.45% 
   Nasdaq Composite                                                     18,552.73  -2.74%  -5.79%  -3.93%  15.73% 
   10-year Treasury                                                     4.31       9.00    -18.60  -26.60  23.00 
   Gold                                                                 2902.7     0.51%   0.78%   9.98%   33.93% 
   Oil                                                                  66.44      -5.26%  -5.79%  -7.56%  -16.39% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due on Thursday include weekly initial jobless claims and the trade deficit for January, at 8:30 a.m. Eastern. Wholesale inventories for January are released at 10:00 a.m.

President Donald Trump will meet next week with some of the U.S.'s largest tech companies to discuss trade policy and manufacturing, according to Bloomberg.

Marvell Technology shares $(MRVL)$ are falling sharply after the semiconductor company's earnings and guidance disappointed traders.

Fed Governor Christopher Waller speaks at 3:30 p.m. and Atlanta Fed President Raphael Bostic speaks at 7:00 p.m.

German government bond yields continued to rise sharply even as the European Central Bank is expected on Thursday to cut its main deposit rate by 25 basis points to 2.50%.

Best of the web

The diabolical world of phone scams.

Elon Musk also has a problem with Wikipedia.

Europe's powerful tool against Russia? Seizing its frozen assets, says Stiglitz.

The chart

The euro early Thursday moved above $1.08 for the first time since early November. And judging by the chart below from Brent Donnelly, president of Spectra Markets, which shows how the EUR/USD tracks the rate differential between 10-year Treasurys and German bunds, the single currency may have further to go.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   PLTR    Palantir Technologies 
   TSM     Taiwan Semiconductor Manufacturing 
   GME     GameStop 
   MSTR    MicroStrategy 
   BABA    Alibaba 
   AAPL    Apple 
   AMZN    Amazon.com 
   SMCI    Super Micro Computer 

Random reads

Goodbye to baseball's most anachronistic rule.

To get a woolly mammoth you first need a woolly mouse.

How Billy Possum failed to replace Teddy Bear as America's national toy.

-Jamie Chisholm

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 06, 2025 06:30 ET (11:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.