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Short-term
Outlook:
Short-term Strategy
What: We will remain neutral
for now.
Why: The
stats posted on Twitter related to opening gaps on Nonfarm Payroll
(NFP) day
were clear in that we should expect a drop from the opening
prices, at least when looking through this week. Of
the 10 times since 2000 that the S&P has gapped up +1% on
NFP day, only 1 time did it close the next week in positive
territory, and overall its average return was -2.1%.
We also have negative seasonality for the coming week
(negative seasonality? In December? Gasp!).
From the 4th through 10th trading days of December, the S&P
has managed a gain only 43% of the time since 1928, and
sported an average return of -0.3%, and with a negative
risk/reward ratio. Then it turns very (very...)
positive as we head into the holidays. Given that and
the sentiment data we went over last week, we're still
looking for lower prices this week. The biggest fly in
the ointment for shorts is the oversold STEM.MR Models.
So we're looking for lower prices this week, but don't see a
good risk/reward setup just yet.
Sentiment:
Trend:
Oversold STEM.MR Models for both the S&P and NDX (that's bullish for
stocks), but other measures are in stark conflict with them. Still in the
1085 - 1110 range. Support/Resistance:
Other Tendencies:
Resistance is still tough
near 1110. Tendency to "fade" from a
positive NFP day, and some negative seasonality for this time in
December.
Intermediate-term Outlook:
Intermediate-term Strategy
What: 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 still tough
near 1110. Pullbacks after highs
have been positive, but we've seen some "toppy"
kind of behavior.
Equity Indicators - Updates and Extremes
Commercial Hedger Positions In NDX Futures Speculators
continue to like the Nasdaq 100. Really, really like it. The
chart below shows commercial hedger positions in Nasdaq 100 futures, but
by definition, large and small speculators are taking the other side of
the trade. The bottom like is that "smart money" hedgers are net
short to one of the most extreme degrees in the history of this data
(going back to 2000).
The other three weeks highlighted on the chart are 12/01/04, 12/05/05
and 10/15/07. As we can see from the big red arrows, none of them
were fortuitous times to be looking for an extension of the rally.
The latest
weekly data from the options markets shows that the smallest of traders,
those trading 10 contracts or less at a time, have remained quite
bullish. The ROBO Put/Call ratio was unchanged, as speculative
call buying jumped from 30% to 35% of total volume, but protective put
buying dropped as well.
This is the first time since the March low that we've seen two
consecutive weeks with such an extreme ratio. The other four times
the ratio hit its upper red trading band, the S&P 500 was about to enter
a short-term correction.
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Equity Market Indicators
Notes: Corporate insiders and the various sentiment surveys continue to be the more worrisome indicators among the broad groups that we follow. Most of the others are either neutral or slightly bearish (for the market). Among individual indicators, we continue to watch most closely for scenarios where 0% are bullish and 30% or more are bearish, which has been a very consistent predictor of short-term weakness ahead since March.
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
7, 2009
Neutral As of Dec 4,
1115
SPX
