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Short-term
Outlook:
Short-term Strategy
What: We will go 25% Bearish if the S&P 500
trades below 1114.
Why: There have been 9 years when the S&P 500
futures gapped +0.2% or more the day before Christmas break.
7 times it closed higher than the open, averaging +0.3%.
It's difficult to fight that kind of light-volume seasonal
influence, though as we discussed yesterday, over the past
20 years the positive bias heading into the end of the year
has become much (!) less consistent than it used to be.
With our indicators where they are now, I don't want to
short this market into higher prices and new highs, but
would be willing to take a small shot if we actually see
some sign of buying exhaustion.
Sentiment:
Trend:
Big spread in the Indicators At Extremes. All short-term
trends are positive. Sup / Res:
Other:
Breaking to new highs, not
much resistance above. Positive seasonality ahead of
Christmas.
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
Rydex Healthcare Assets and InsiderScore.com Buy/Sell Ratio It's a rare
situation to see a "dumb money" indicator, that tends to be wrong at the
extremes, hit a historic level at the same time a "smart money"
indicator reaches the opposite extreme.
We have that now in the Healthcare sector. As of this week, assets
in the Rydex Healthcare fund (dumb money) reached its highest levels
since 2000.
At the same time, we discovered this week (thanks to the excellent
InsiderScore.com service) that corporate insiders in the sector
(smart money) moved to their 2nd-largest skew towards selling in at
least six years. The only other week that exceeded the current
selling was March 9, 2004...which marked an intermediate-term high for
the sector.
Obviously, there are major political cross-currents in this sector right
now, but it seems unlikely that the stocks will make much more headway
with this kind of setup. Wouldn't it be just like the market to
top out right as the Senate approved a sweeping healthcare bill?
In yesterday's
Morning Report we looked at the spread between the number of our
indicators that were at a bullish (for the market) extreme versus those
which were bearish. For the seventh time since the March low, they
were at 0% and 30%, respectively. The other six instances all led
to a short-term correction shortly thereafter.
I want to touch on it briefly again today, as the bullish percentage
stayed at 0% while the bearish spiked above 40%. This is only the
third time since mid-2007 that has occurred (the others were 05/30/07
and 05/15/08).
The only other time since 2000 that we've had 0% at a bullish extreme and 40% or more at a bearish extreme was in August and September 2000. We've had a greater percentage at a bearish extreme before (upwards of 60%), but the peak in 2000 was the only other time we also had no indicators in the bullish column at the same time. I don't think we're in store for anything as dramatic as a repeat, but I thought it was at least notable.
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Equity Market Indicators
Notes: For several weeks, we've been watching for a day where 0% of our indicators were bullish (for the market) while 30% or more were bearish. We have that again as of December 22nd.
The reason we've been watching for this is that every time it has occurred since the March bottom, stocks entered a short-term corrective phase. While seasonality and extremely low volume may impact this instance, it's certainly a cause for (short-term) concern.
More history:
* New extreme
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Bonds, Commodities and Currencies - Updates and Extremes
Nothing notable for today.
On A Personal Note...
For those observing, please have a safe and very Merry Christmas! For those not, hopefully you get a chance to relax and spend quality time with family and friends.
We have a fresh 6 inches of snow on the ground this morning...and another 8-12 on the way. It just doesn't get much better than that.
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 24, 2009
Neutral As of Dec 17,
1098
SPX
