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Short-term
Outlook:
Intermediate-term Outlook:
What: We will turn Neutral if the S&P 500
closes above 1151.
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 expectations. On January 8th, the
Dumb Money Confidence hit 75%, and every time we've seen
this kind of extreme in the past 15 years, any further
short-term strength (over 2-4 weeks) was reversed
longer-term (over 1-3 months). We expect the same this
time around, so it was a matter of waiting for price action
to crack a little. Since 1928, there have been 7 times
the S&P hit a 52-week high then suffered consecutive 1% down
days (07/20/33, 03/09/45, 05/10/45, 07/17/75, 10/09/79,
02/15/80). All but one led to an intermediate-term
correction. Given that, and combined with the poor
sentiment condition, further selling pressure should be in
store.
Sentiment:
Trend:
Smart/Dumb Confidence is bearish.
Rrising 200-day avg;
higher highs/higher lows. Sup / Res:
Other:
Resistance at 1150, support
from 1090-1100. Seasonality is modestly
negative, price action is negative.
Equity Indicators - Updates and Extremes
We've touched on sentiment in the Gold market a few times, and lately it
was somewhere between neutral (Public
Opinion) and overly optimistic (speculators in
Gold futures and
Rydex traders). The recent
correction has brought those measures down a bit, and none more so than
assets in the Rydex Precious Metals fund. These folks are prone to
exceptionally large one-day moves when they feel the trend is
threatened, and that happened in spades yesterday. Yesterday's
exodus from this fund was the greatest one-day outflow in its
decade-long history. A couple of
weeks ago, there were more assets concentrated in the Precious Metals
fund than any other sector at Rydex. That changed abruptly on
Thursday as it went from greater than 20% of all assets down to 13%.
While it has gotten a bit lower since the inception of the SPDR Gold
fund, previous forays down to this level have mostly equated to bottoms
in GLD, or close to it.
The key for most technicians will be the December low around
106. If GLD violates that, then we'll have a series of
lower highs and lower lows, coming off of a parabolic run
higher. That wouldn't necessarily mark the end of
Gold's uptrend, but it would at least turn the trend neutral
for the time being and it would be a change in character
from the past few years when it rallied almost immediately
after Rydex traders turned tail like they did yesterday.
On A Side Note...
Two things:
1. Starting today, the
Intraday Snapshot will be
updated every 15 minutes, and with essentially no lag time
(it used to be 2 minutes).
Whenever we change the macros, a gremlin seems to pop up, so
if something goes a little screwy today, know that we're working on
it.
2. I've received quite a few questions about my choice to
not remove the 25% bearish bias when the S&P closed (barely)
above 1150 on Tuesday. I noted in the
comments section
of that day's morning report of my choice, but many did not
receive that notice. Some have suggested using
Twitter
to update those kinds of things in the future, but Twitter
is still not widely accepted, especially in corporate
environments. So we'll be going back to good old email
updates for any intraday notes of import. Most of you are on the
intraday update distribution list, so if you find it's too
much noise, simply change your email preferences at the end
of each email we send.
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Equity Market Indicators
Notes: Since the March bottom, every time we saw 0% of our indicators at a bullish (for the market) extreme and 30% or more at a bearish extreme, the S&P 500 formed a short-term peak quickly thereafter. We saw that a couple of times since late December, and again the market has had trouble maintaining gains.
The selling pressure of the past two days, though, has moved several indicators in the Volatility and Breadth groups at least to neutral, and in some cases bullish (for the market), especially the shortest-term ones, so the Indicators At Extremes is now back to Neutral territory and the Short-term Indicator Score is oversold.
More history:
* New extreme
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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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January 22, 2010,
7:55am EST
50% Bearish From Jan 21,
1128
SPX
