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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: I'm still not willing to bet against the
rally here to any meaningful degree unless we see evidence
of a failed breakout. We're in store for what should
be
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. Nothing notable.
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
Small Trader Options Activity and
Large Trader Options Activity It seems that we
get a chance to highlight this almost every week lately, and this one is
no exception.
Out of the considerable number of our indicators currently sitting at a
bearish (for the market) extreme, the most disturbing is likely the ones
from the options market. Once again this week, they gave
remarkable readings for all the wrong reasons...very little perceived
need from traders, large and small, for protection heading into the new
year.
The chart below shows protective put purchases by small and large
traders, as a percentage of their total options volume. Both of
them are around 15% of the total, and both are at or near extreme lows.
For large traders, this week's reading and the one in late November are the lowest since we have data back to 2000 other than a week in early January 2000.
For small traders, this is the lowest level of protective purchases since 2005, and is the first time we've seen it more than 3 standard deviations away from its one-year average. This appears to be a pattern among small traders, as we saw the year's biggest dips in put buying in late December of 2001, 2002, 2004, 2007 and 2008.
The following Januarys sported S&P 500 returns of -1.6%, -2.7%, -2.5%, -6.1% and -8.6%. Something to keep in mind if we drift higher into year-end on light volume and a "nothing can take this market down" mentality.
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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.
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 28, 2009
Neutral As of Dec 17,
1098
SPX
