The founder and CEO of Market Structure Edge, Tim Quast, appeared on Benzinga Premarket Prep earlier this week to provide his thoughts on the markets before the start of the crucial bank earnings season.
Quast observed that investors are presently “more long” Wells Fargo & Company (NYSE:WFC) and JP Morgan Chase & Co. (NYSE:JPM) than they are Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) after analyzing the most recent supply and demand trends.
Other than Bank of America (NYSE:BAC), where the supply volume is shifting to the upside with demand peaking, the latest supply trends indicate that investors are generally lowering their short bets on major U.S. banks.
Read also: US Banks Earnings Preview: All Eyes On JPMorgan, BlackRock, Citigroup, Wells Fargo Q1 Reports
Source: Market Structure Edge
Quast Predicts Declines In Sight For The Broad Market
“No one knows supply and demand better than market makers,” Quast observed.
Gains result from a combination of increased demand (for longs) and declining supply (for shorts), which is what we have so far observed in the broad market, as represented by the SPDR S&P 500 Trust ETF (NYSE:SPY), over the past weeks. Demand has increased while supply has decreased from 52% to 50%.
Where exactly are we going now? Next week, smack in the middle of earnings season, options will expire, which could pose some volatility, according to the expert.
With demand decreasing and supply rising, a reversal may be in the cards, because traditionally that’s what has happened when broad market sentiment was this strong. “If I were betting, I would bet that the market decline,” Quast said.
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