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Short-term
Outlook:
Short-term Strategy
What: We will remain neutral.
Why: In a
Research Report yesterday we looked at breakouts again,
and it confirmed that markets exiting such tight coils tend
to have immediate follow-through. Combined with
(mostly) positive seasonality, that's a good thing. A
reason for pause is the new extreme in some of the options
indicators (yes, I know they were influenced by expiration
last week). As long as we remain above 1110, even with
the put/call extremes, for now I don't see a compelling
enough reason to try to trade against this strength.
As far as trading with the strength, given this
morning's indicated gap up open (+0.5% as I type), it would
likely pay to trade on the long side on an intraday time
frame as long as we make a higher intraday high after the
first hour of trading.
Sentiment:
Trend:
Most of our indicators are neutral. All short-term
trends are positive. Sup / Res:
Other:
Breaking to new highs, not
much resistance above. Nothing notable - seasonality
doesn't turn positive until later this week.
Intermediate-term Outlook:
Intermediate-term Strategy
What: We will remain neutral.
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.
The rally exceeded all kinds of expectations, and on an
intermediate-term time frame we haven't seen too many
reasons to expect an imminent end. There have been
some signs of a
surge in
speculative activity, but that has only led to
short-term dips. Until we see more signs of outright
and excessive speculation across the broad spectrum of
measures we follow, and/or a technical breakdown in the
market, we can't spot many reasons to fight the uptrend just
yet. That may change during the seasonally weak middle
of January, but for now higher prices get the benefit of the
doubt.
Sentiment:
Trend:
Smart/Dumb Confidence is neutral.
Rrising 200-day avg;
higher highs/higher lows. Sup / Res:
Other:
Trading at new highs. Nothing notable.
Equity Indicators - Updates and Extremes
Yesterday we
looked at the Options Speculation Index, which continues to spike into
territory rarely seen, and usually negative for the market over about a
two-month time frame.
Monday's trading triggered another extreme, this time on a much
shorter-term basis. While certainly impacted to some degree by
last week's options expiration, yesterday there were only 62 equity and
index put options traded for every 100 call options. That is, in a
word, extreme.
Since the March low, that level has been eclipsed only by August 21,
which preceded a short-term correction. Prior to that we'd have to
go back to December 21, 2007, which also led to a (much nastier) market
drop.
Put/call ratios tend to trend, however, so I prefer to view them on a
relative basis. Even in that case, yesterday's reading was more
than 25% removed from its six-month average.
There have been 22 times when it reached that extreme the day following
an option expiration, and through the end of the week the S&P managed a
gain only 7 times, averaging a return of -1.0%, average maximum gain of
+1.4% and average maximum loss of -2.2%.
Rydex Transportation Assets and
Rydex Electronics Assets Monday's trading
saw a strange jump in assets in a couple of Rydex mutual funds.
Both Transportation and Electronics (i.e. semiconductors) enjoyed
one-day inflows that pushed the assets of both funds to more than 500%
higher than they were the day before. For
Transportation, that was enough to move the assets to its highest level
since the summer of 2006. Since 2000, whenever assets were above
the current level of $73 million, the Dow Transportation Average managed
a gain over the next two weeks only 40% of the time.
Assets in the Electronics fund have been quite a bit higher, though it
too has never seen such a huge one-day change of heart among traders.
Assets in this fund have acted kind of funky since the March low, not
really following the price action, and the two previous spikes in assets
didn't lead to anything more dramatic than very choppy short-term price
action in the semi 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.
Jason Goepfert Founder, Sundial Capital Research, Inc.
Forwarding or other distribution of this email is prohibited without the express permission of Sundial Capital Research, Inc. If you do not possess a firm-wide license, then forwarding this message will violate your subscription agreement.
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For
December 22, 2009
Neutral As of Dec 17,
1098
SPX
Bearish For The Market