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Short-term
Outlook:
Short-term Strategy
What: We will remain neutral
for now.
Why: We have a bearish bias for this week, but
it's difficult finding a good risk/reward way to trade it.
Price action in the S&P has been exceptionally whippy on an
intraday basis, and as of this writing the future are
indicated to gap down right around 1096, which has been a
pivotal level since late November. Should that fail,
1085 support is just underneath, so we could be in for more
of the same volatility, though we are looking for a downward
bias. The oversold condition from the STEM.MR Models
heading into yesterday have been alleviated, and we still
have the bearish indications that we discussed recently (low
I.I. bears, surge in speculative options trading, extremely
net short "smart money" traders in the Nasdaq 100, terrible
historical performance after a Nonfarm Payroll reaction like
last week, poor seasonality for this week).
Sentiment:
Trend:
The STEM.MR Models are back to neutral. Some bearish signs as
noted above. Still in the
1085 - 1110 range. Support/Resistance:
Other Tendencies:
Resistance is tough
near 1110. Minor support is at 1095, better support is at 1085. 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 multiple
failures to hold the 1100-1110 breakout area are another
warning sign. This is especially the case after we've
seen a
surge in
speculative activity, which has continued during the
first week of December.
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
On
November 3rd, we took a look at where Rydex traders were focusing
their money. Since then, we've seen a major rotation out of Energy
(from 22% of total assets to 10%) and into Health Care (a huge change
from 2% to 14%) and Basic Materials (from 5% to 11%). Precious
Metals continue to earn the most popular position while Financials are
suckling the hind teat.
Precious Metals, Consumer Products and Health Care are now either at or
very near their all-time highest Rydex asset allocations (dating back to
2000). Technology, Biotechnology and Financials are near their
lowest allocations, especially Biotech.
These sector allocations tend to be moderately reliable contrary
indicators, and watching for technical breakdowns and breakouts,
respectively, among the most popular and least popular sectors can be a
viable strategy on a short- to intermediate-term time frame (several
weeks).
Rydex Energy Assets and
Rydex Energy Services Assets One of the
biggest moves among the sectors above was in Energy. The two
Energy Sector funds have seen their assets drop to 10% of total sector
assets, the lowest since 2004.
From 2000 to 2004, the sector's assets traded in a range between 2% -
12% of total assets. Then as the bull market in Crude took off, it
went to "Phase 2" and assets traded between 12% - 30% of the total.
Only recently have the funds broken down below that floor of the past
five years, creating something of a divergence with price (see below).
This is only the second prolonged divergence between the Rydex assets
and the price of Crude. The other one was in late 2007 when, as
now, Crude made a series of higher highs and higher lows while Rydex
traders continually went the other direction. That led to a
breakout move in Crude.
We're kind of fudging with the recent divergence since we had a spike
higher in November, but the channel is clearly down in assets while the
channel is clearly higher in Crude. It's really sketchy to base a
trade off of one prior instance, but we are intrigued that traditionally
wrong Rydex traders are seemingly so apathetic toward the Energy sector.
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Equity Market Indicators
Notes: Corporate insiders, equity index futures positions (primarily in the Nasdaq 100) 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 imminent short-term weakness 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
8, 2009
Neutral As of Dec 4,
1115
SPX
