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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
There isn't too much to add to our indicator discussion
today. The biggest development among them was the
Equity Put/Call Ratio, which pushed to its most extreme
level since October.
The chart below highlights each reading since the March low
that the ratio matched or exceed the current extreme.
They were all bunched between August and October, and 4 out
of the 5 led to a short-term peak in the S&P 500.
Nonfarm Payrolls
The current Bloomberg estimate for the Nonfarm Payroll
number is exactly flat - no gain or loss. The highest
estimate is for a gain of +85K while the lowest is a loss of
-100K. That spread is the widest in the past four
months.
Market environments are always changing - sometimes a very
positive NFP number is taken as good news (as a sign of a
recovering economy) and sometimes it's taken as bad news (as
a sign that the Fed will hike rates and make borrowing more
expensive).
Lately, positive surprises have been taken as good news, and
negative surprises as bad news. Historically, the S&P
500 gaps up nearly 80% of the time on a good number, and
that includes 15 out of the last 16 instances. On a
bad surprise, though, it has gapped up only 43% of the time,
and the last 4 were gaps down.
Like we discuss often, however, the initial reaction is not
the best guide to future performance. On those days
when the NFP surprised to the upside and the S&P gapped up
(since 2000), then on 6 of the last 8 occurrences the S&P
closed below its opening price, and since 2000 it showed a
positive return over the next three days only 27% of the
time.
When there was a negative number and a gap down, the
contra-reaction wasn't as consistent (the S&P was up three
days later 53% of the time), although on 6 of the last 8
occurrences the S&P closed above its opening price.
Bottom line, the market will do what the market's going to
do based on current sentiment. Historically, a
positive surprise should lead to a gap up open...but the
odds of that price being sustained over the next few days is
very small, especially considering the current state of our
sentiment indicators. If we get a negative surprise,
the market may actually take that as a positive (more time
for the Fed to leave rates at 0%), so that will be a bigger
wild card.
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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 8, 2010
Neutral As of Dec 17,
1098
SPX
