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Short-term
Outlook:
Intermediate-term Outlook:
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 we
looked at the
Rydex Beta Chase Index, which had spiked to a level that suggested
traders were focusing their trading on the highest-beta mutual funds
that Rydex offers (meaning the funds that tend to move the most relative
to the market).
As we do each month, let's take a look at where the assets at Rydex are
concentrated among the various funds. Not all funds are included,
as they typically don't make up enough of the total to count, but this
month we actually would have had to include Transportation and
Utilities, which would wind up near the bottom just above Financials.
Speaking of Financials, they remain the least-loved of all the sectors,
garnering just 2% of total sector assets. That's the same as where
it was when we looked in
December. Also unchanged is Precious Metals, at the top of the
heap, though assets have dropped from 26% to 22% of the total.
The biggest changes were in Technology and Basic Materials. Tech
went from an apathetic 8% of total assets all the way up to second place
at 14%. While that's a bit high historically, it has gotten up to
20% - 25% near prior peaks.
Basic Materials suffered the worst drop, going from 11% of total assets
down to only 6%. That's low, but it has gotten as low as 3% (in
mid-November 2008)...and as high as 21% (in early March 2008).
There isn't anything that really sticks out this month, other than that
Health Care and Consumer Products are at levels that typically lead to
weaker results for those sectors while Financials, Biotech and Energy
are at levels that have led to better returns.
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Equity Market Indicators
Notes: For several weeks, we'd been watching for a day where 0% of our indicators were bullish (for the market) while 30% or more were bearish. We got that again on December 22nd, and it got worse as the market rallied on extremely low volume to end the year.
This type of setup has preceded a short-term correction every time since the March bottom. Equity-market weakness to end the year lifted the Extremes off their worst levels, but it's likely not enough to fulfill the usual pullback from such skewed extremes.
More history:
* New extreme
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Bonds, Commodities and Currencies - Updates and Extremes
Commercial Hedgers In Euro Futures The most-discussed currency at the moment is the US Dollar, as markets around the world have moved along with the Dollar for months on end (though the correlations have been breaking down over the past month or so).
In the Dollar, we're now officially seeing the largest net long position among speculators in the history of that contract. Large speculators hold 81% of all open long contracts, exceeded only by late November 2005 (right as the Dollar was topping).
It's no surprise that we're seeing almost a mirror image in the Euro, where speculators are holding their 2nd-largest ever net short position. The current extreme was eclipsed only by early September 2008 right before the Euro rallied nearly 90 pips (after which it collapsed).
Over the past five years, the Euro has had a tendency to at least stabilize in the month(s) ahead when hedger positions reached 25,000 contracts or more, as they have now.
Jason Goepfert Founder, Sundial Capital Research, Inc.
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For
January 5, 2010
Neutral As of Dec 17,
1098
SPX
