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Short-term
Outlook:
Intermediate-term Outlook:
What: We will turn 25% Bearish with a close
below 1128. That will go back to neutral with a
subsequent close above 1137.
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 saw more signs of outright
and excessive speculation across the broad spectrum of
measures we follow (we're there now with Dumb Money above
70%), and/or a technical breakdown in the market (no
evidence of that yet), we were giving the uptrend the
benefit of the doubt. We will turn slightly negative
if we see some price weakness from here.
Sentiment:
Trend:
Smart/Dumb Confidence is bearish.
Rrising 200-day avg;
higher highs/higher lows. Sup / Res:
Other:
Trading at new highs. Seasonality is slightly
negative.
Equity Indicators - Updates and Extremes
Rydex Fund Flow For The Nasdaq 100
In
2004 we discussed how the Nasdaq 100 (NDX) tends to
suffer January corrections, with the index peaking on the
8th trading day of the month on average.
Since then, if we bought the Nasdaq 100 trust (QQQQ) on the
8th trading day of January and held until the end of the
month, we would have had returns of
-2.3%,
-3.1%,
-2.3%,
-2.7%, -5.7%
and -1.6%.
The average maximum gain during those approximately two-week
trades was +1.6% (with
only one greater than +3%) while the average maximum loss
was -5.8% (with every
one of them greater than -3%). Now that's a negative
skew.
When we combine that tendency with some of our current
sentiment data, it looks likely that stocks - even
highflying tech - will correct into February. One
piece of that sentiment data comes from the flow of money
among the Rydex mutual funds. As of yesterday, we're
seeing the highest Bull / Bear Ratios in the leveraged and
un-leveraged Nasdaq 100 funds in seven years.
Let's zoom in that chart to better see the past year's activity:
There have been four other periods since the March low when we saw a
surge in both ratios at about the same time (June 15th, August 5th,
October 1st and October 27th). Each time, the NDX either formed a
short-term peak or at least ran into a few rough days before surging to
another new high.
While we may continue to see a seasonal push higher in the coming days,
any short-term gains should be erased by month-end.
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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
Gold Sentiment
With so much attention on Gold, it's a good time to review a few of our sentiment guides for the metal.
The chart below shows the net position of small speculators in Gold futures, our Public Opinion indictor and the amount of assets in the Rydex Precious Metals Fund.
There hasn't been too much of a change since the last time we looked in November, despite the quick rise and fall in Gold during that span. As we saw yesterday, the amount invested in the Rydex Precious Metals fund is still high, even though it has dropped quite a bit from 26% of total sector assets down to 22%.
The biggest change in the measures we follow is in Public Opinion. That has dropped from 75% (bullish) down to 60%. Historically, 60% is not anywhere near oversold (in fact, in the late '90's it was closer to an overbought level), but it is on the lower end of neutral when looking at the past seven years. And it is below its green trading band, which is 1.5 standard deviations from the one-year average. It's also the lowest level since April.
Over the past year, every time Public Opinion has dipped this much, Gold bottomed almost immediately afterward, and it's trying to do so again. I don't see much to argue with the pattern repeating, and won't unless we see Gold violate its mid-December low, which would clearly break the recent pattern.
Jason Goepfert Founder, Sundial Capital Research, Inc.
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For
January 6, 2010
Neutral As of Dec 17,
1098
SPX
