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Short-term
Outlook:
Short-term Strategy
What: We will remain neutral
for now.
Why: This is the first time I can remember that
all four boxes below (Sentiment, Trend, Support/Resistance
and Other Tendencies) are all neutral. Usually at
least one of those has one bias or another to help guide
short-term trading, but for the 22nd consecutive day the S&P
has not closed any more than 2% beyond where it was on
November 9th. That marks the longest such streak since
July 16, 2007. That happened to mark a top, but
historically such range-bound markets have been inconsistent
predictors. So we have a market that is within the
most obvious range in years, with absolutely no edge or bias
among the short-term factors we use.
Sentiment:
Trend:
Most of our short-term guides are neutral. Still in the
1085 - 1110 range. Support/Resistance:
Other Tendencies:
Both support and resistance
are relatively nearby (1085 and 1100). No edge is present.
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. Unless the S&P breaks major
support, however (which we're using at 1065), we can't find
much reason to be bearish.
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, but there are multiple layers of support under the major
equity indexes. Pullbacks after highs
have been positive, but we've seen some "toppy"
kind of behavior.
Equity Indicators - Updates and Extremes
Over-The-Counter
(OTC) volume, also known as pink sheet or penny stock volume, receded in
November to the lowest level since the rally kicked off in March.
On a relative basis, it dropped to 78% of total Nasdaq volume, down from
92% in October.
OTC volume is a good proxy for longer-term speculative juices flowing in
the market, since traders often migrate to these "lottery ticket" stocks
when the market is doing well. Extremely high or low turnover in
these shares often coincide with peaks or troughs, respectively, in the
Nasdaq.
Another sign we sometimes see is that the average cost/share of these
transactions drop dramatically after a market rally as traders reach for
the cheapest stocks, the ones that essentially offer the highest risk
and highest leverage. For example, in the summer of 2004 and again
in the spring of 2006, the average cost/share dropped by half just
before a correction set in. In November, however, the average cost/share actually
rose to 5.2 cents/share from 4.8 cents/share in October.
There continues to be no evidence that traders have focused on the
lowest-probability stocks in expectations of a new bull market.
This is bullish for the market (or at least not bearish).
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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
10, 2009
Neutral As of Dec 4,
1115
SPX
Bearish For The Market