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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
AAII Bearish % and
AAII Allocation To Stocks And Cash
Last week, we saw a big drop in bearishness among the
individual investors polled by the American Association Of
Individual Investors (AAII). The percentage moved so
much that it was more than 2 standard deviations away from
the average reading over the past year.
This week, there wasn't much of a change. There was a
modest rise in bears, and a modest dip in bulls, but we
continue to see a level of sentiment that has caused trouble
the past few times it has occurred.
This lack of bearishness is clearly reflected in the monthly
update on where individuals are concentrating their money.
Individuals' allocation to the stock market rose more than
15%, one of the largest one-month increases in the 22-year
history of the survey. Their current 64% allocation to
stocks is at the highest level since October 2007.
Meanwhile, their allocation to Cash fell to only 18%.
While we're splitting hairs here (it dropped to 19% several
times), the current allocation is the lowest since August
2000.
Since 2000, whenever we've seen this kind of spread between
stocks (high) and cash (low), the equity market has
struggled over the next few months. I should note,
however, that from 1997 through 1999, we saw a higher
allocation to stocks, and a lower one to cash, while stocks
continued to power higher.
Recently, the months with a similar kind of extreme to now
(more than 62% stocks and less than 19% cash) were June
2001, February 2004, January 2005, May 2006, February 2007,
May 2007 and August 2007.
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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
Nothing notable for today.
Jason Goepfert Founder, Sundial Capital Research, Inc.
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For
January 7, 2010
Neutral As of Dec 17,
1098
SPX
