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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:
Sentiment:
Trend:
Big spread in the Indicators At Extremes. All short-term
trends are positive. Sup / Res:
Other:
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 (we're getting close now), and/or a technical breakdown in the
market (no evidence of that yet), 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 bearish.
Rrising 200-day avg;
higher highs/higher lows. Sup / Res:
Other:
Trading at new highs. Nothing notable.
Equity Indicators - Updates and Extremes
Yesterday I
mentioned that the percentage of bears (those looking for a market
decline) among newsletter writers in the Investor's Intelligence survey
dropped to the lowest level in 22 years.
Today, we find out that individual investors in the American Association
of Individual Investors (AAII) survey aren't far behind.
Actually, that's a stretch; the percentage of bears in the AAII survey
has dropped as low as 10% in the past, while this week they're at 23%.
That's still nearly a four-year low, but on an absolute basis, they've
certainly been more scarce than they are now.
But for the AAII data in particular, I prefer to watch it on a relative
basis, meaning expressed in terms of more recent readings. On the
site, we plot the AAII indicators along with bands that are 1.5 and 2
standard deviations away from the one-year average.
On that basis, the percentage of bears has now exceeded 2 standard
deviations for the first time since June 2003.
The last time this indicator exceeded one of the 2 s.d. bands was in
late February when we saw the bearish percentage spike to 70%.
That turned out to be a great contrary indicator on an intermediate-term
time frame.
Since this survey's inception in 1986, there have been 7 other weeks
where the bears dropped more than 2 s.d. away from the one-year average.
Overall, the price action in the S&P 500 over the next month could best
be described as tepid. Twice (in 1994 and 1997), stocks just
continued to power higher; once (in 1999) it squirted higher a couple of
percent, but then over the next month it gave all those gains back...and
then some. Mostly, stocks just didn't go much of anywhere for the
next 1-3 months.
Here are the dates: 04/17/92, 12/11/92, 12/23/94, 05/24/96,
05/30/97, 12/03/99 and 06/20/03.
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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...
I'm not a big fan of making off-the-cuff forecasts about the upcoming year, or reviewing "best of" posts from the prior year. I will say, though, that 2009 was exceptionally challenging for the type of work we do (momentum markets usually are), but the good news is that typically when we see a market like 2009, then the next year we get something much more responsive to indicator extremes.
So here's my big prediction for 2010...we'll see the biggest correction since the March 2009 low during the first quarter, likely during January. We'll subsequently see another major rally either close to or reaching higher prices than we're at now, then another fall drop before a fourth-quarter rally. There...now print this out, crumple it up and throw it in the trash. We'll just take it one day at a time.
Thank you all so much for your excellent questions, astute comments and kind support this year...now here's to making 2010 the best one yet...Happy New Year!
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 31, 2009
Neutral As of Dec 17,
1098
SPX
