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Today's Need-To-Know * Monday's
trading generated an extremely high Equity Put/Call Ratio (relatively
speaking) - has resulted in positive 2-day returns in the S&P 83% of the
time since March. * Rydex
traders have apparently re-discovered Health Care as a viable sector
after all but ignoring it in early November. * Fund
managers continue to hold little cash.
Short-term
Outlook:
Neutral since Oct 5th (1029
SPX)
Short-term Strategy
We will go 25% Bearish if the S&P 500 e-mini
futures trade at 1110 during the first hour of trading.
If triggered, we will go back to Neutral if the contract
trades at 1118 after the first hour of trading.
Why: Over the past week, a few negative
factors popped up -
troubling
net
short positions from "smart money" traders in the NDX,
a surge in
speculative options activity, a
jump in call buying on the
ISE exchange and the
8th-lowest percentage of bears in the I.I. survey in 20 years. Friday's session
helped to confirm a negative view, but it was news-related and
during a holiday session, both of which lessened our
confidence that it was a reliable measure of eager
selling pressure. So we were looking for a move
below 1085 for confirmation, but the indicated gap today is
going the other direction, with the futures currently up 9
points. Now we'll just have to see how resistance at
1110 holds.
Sentiment:
Trend:
Mostly neutral short-term guides, though STEM.MR for the
NDX has just cycled out of oversold and we have the high put/call ratios
from Monday. Still stuck in a range between 1085 and 1110. Support/Resistance:
Other Tendencies:
Support at
1085, resistance nearby at 1110. Nothing
notable.
Intermediate-term Outlook: Neutral
since Apr 9th (843 SPX)
Intermediate-term Strategy
We will remain neutral for now.
Why:
In March,
we discussed a large number of reasons to expect an imminent rally
of one to three months' duration, or perhaps even more.
We've had ample opportunity to discuss the historic
momentum since that low, and have seen little reason
since to expect anything other than short-term
corrections. In
late October, we looked at
some "toppy" kinds of studies, and after those warning signs the S&P broke
its uptrend line from March.
However, during that late-October correction, traders quickly
became bearish and the market convincingly bounced
back - that's healthy behavior. The recent
failure to hold the 1100 breakout area is something to
watch carefully given the "topping" warning signs and a
surge in
speculative activity, especially as we look to challenge
that 1110 area yet again.
Sentiment:
Trend:
Smart/Dumb Confidence Spread is neutral.
The S&P has a rising 200-day average and a series of
higher highs/higher lows. Support/Resistance:
Other Tendencies:
Resistance is nearby at 1100. Pullbacks after highs
have been positive, but we've seen some "toppy"
kind of behavior.
Equity Indicators - Updates and Extremes
Profit/Loss Of Japanese Margin Traders The Nikkei index has had a rough couple of months, unlike the S&P 500.
That is reflected in the poor performance of margin traders in Japan,
which has now reached an extremely low level. When they've done
this poorly in the past, the Nikkei (and S&P 500) have often rebounded
in the intermediate-term, with two big failures - the summer of 2000 and
the fall of 2008.
Mutual Fund Cash As % Of Total Assets Fund managers increased their cash holdings just a bit in October, from
3.8% to 3.9% of total assets. Historically, that's still extremely
low, with the only other periods under 4% being May 1972, March 2000,
the summer of 2005 and for several consecutive months beginning in
December 2006.
Expressed in terms of prevailing interest rates, the current level
isn't quite as extreme.
On
November 3rd, we looked at the low level of assets that traders had
invested in the Rydex Health Care Fund. Usually, that fund rallies
under such apathetic conditions, and did so again. They have
apparently re-discovered that fund, however, since assets have exploded
higher, now accounting for about 12% of total sector assets. While
not as good a "top" signal as low assets are a "buy" signal, this is
certainly a sign that the sector has quickly lost its un-loved status.
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Equity Market Indicators
Notes: No one particular group of indicators is showing abnormal extremes. Since the March low, the market has seen a consistent pattern of pulling back when we have 0% of our indicators at a bullish (for the market) extreme and more than 30% at a bearish extreme. It nearly reached that spread in mid-November, but has settled back recently.
More history:
* New extreme
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Bonds, Commodities and Currencies - Updates and Extremes
Nothing notable for today.
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For December
1, 2009
