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Short-term
Outlook:
Short-term Strategy
What: We are 25% Bullish and will move to
neutral if the S&P 500 cash index closes under 1105.
If it reaches 1120, we will keep a 5-point trailing stop.
Why: Yesterday's down day relieved most of the
short-term overbought conditions. That leaves the
biggest bias with the other factors mentioned, which are
still in play - December's historical win rate during option
expiration week and the tendency to follow through from an
upside breakout of a very tight range. We also have a
positive in that 11 out of 11 times, the S&P 500 has risen
the day of a scheduled FOMC announcement when the prior day
was down more than -0.5% (as posted on
Twitter yesterday). We need to keep aware, though,
of the consistent tendency to see a reversal from a strong
close the day of a FOMC meeting (e.g. the S&P was positive
only 31% of the time two days after a +1% gain on FOMC
day...compared to 75% when it was down -1% or more).
Sentiment:
Trend:
Most of our indicators are neutral. Short-term trends
are pointing higher. Support/Resistance:
Other Tendencies:
Now we have Monday's high at
1115 to get over. Tendency to follow through
from a breakout; strongly positive seasonality during December option
expiration week; positive on FOMC days.
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. The S&P has broken to a new
closing high, which usually results in further short-term
gains, but these initial breaks often have mean-reverting
tendencies longer-term, and the market very often runs into
trouble during the "meat" of January, so we're not looking
to trade an upside breakout on an intermediate-term time
frame.
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:
New closing high leaves little resistance above. The next minor
resistance is around 1120; multiple layers of support lie below. Pullbacks after highs
have been positive, but we've seen some "toppy"
kind of behavior and speculative activity.
Equity Indicators - Updates and Extremes
Nothing notable
for today.
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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
Public Opinion - Dollar and Rydex Strong Dollar Assets On Monday we showed how traders in US Dollar futures were responding to the recent rally by quickly switching to a net long position.
Two other sentiment measures we follow, Public Opinion and Rydex assets, are also showing a bump up in optimism from very low levels, which is not surprising. The red trading bands we show on the site (and the chart below) are 1.5 standard deviations from the one-year average reading.
Our Public Opinion measure is about in the middle of its historical range. The Dollar has had difficulty going forward when the Opinion reached 70% and above, and it's nowhere near that level yet.
The Rydex assets are above the trading band now, since assets have been very flat for the past year and so it doesn't take much of a move to create an extreme. Historically, though, assets got above $200 million when the Dollar showed prolonged strength last year (currently assets are only $66 million).
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For December
16, 2009
25% Bullish As of Dec
14,
1114
SPX
Bearish For The Market