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Short-term
Outlook:
Intermediate-term Outlook:
What: We will remain Neutral for now.
Why: On January 8th, the
Dumb Money Confidence hit 75%, and nearly every time we've seen
that 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). Now that that's
happened again, we're getting conflicting
studies about whether the price action over the past two weeks is
a sign of a larger trend change. We don't have an
overwhelming number of
signs that we have seen a major market peak, and several
sentiment measures turned very quickly from where they
were in mid-January. We looked at a couple of studies
in early February that suggested we could be very close to a
multi-week low, but they didn't quite trigger as prices
recovered more quickly than they "should" have. That
leaves us without much of a bias for a multi-month time
frame.
Sentiment:
Trend:
Mostly neutral.
Still pointing up. Sup / Res:
Other:
Resistance at 1100-1110, support
at 1050-1060. Nothing notable.
Equity Indicators - Updates and Extremes
If you check out the List Of Extremes in the box below, then
you'll see a number of new indicators added to the list this
morning, as a handful hit new extremes during yesterday's
push higher. All of them are short-term.
That's the kind of thing that leads to a spike in our more
sensitive models, and that certainly happened yesterday,
with the Short-term Indicator Score reaching its
most-stretched level in almost two months.
The dotted lines in the chart below show other such extremes
in the Score, with red lines indicating times the S&P 500
showed a lower close than the extreme day sometime during
the next two weeks, and the green lines showing the times
the S&P just kept chugging higher.
There are only two green lines and ten red ones, which
obviously means that usually the S&P took at least a
momentary breather after a thrust like this before (maybe)
continuing higher. This is true even looking back over
the past decade; 82% of the time, the S&P showed a lower
close within two weeks of the extreme day.
Usually, the S&P closed lower right away. The table
below shows how many days it took before the index closed
below the close of the extreme day (1094.87 in our current
case) since the March low.
Date
Days Until Lower Close Max Gain
In the two exceptions, March and July, the S&P tore higher
during the next few days and never looked back. That
was an excellent clue that buying interest was not likely
going away anytime soon. The other cases were much
more mixed, as were the implications.
Like usual, the key here should be follow-through. If
we continue to see ardent buying interest in spite of these
short-term overbought readings, then it will be a sign that
we have indeed already witnessed an intermediate-term low,
and should see even more of a recovery in the weeks ahead.
If we falter, then it doesn't necessarily mean a re-test of
the low is imminent, but historically it does decrease the
probability of another runaway rally.
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Equity Market Indicators
Notes: During the volatile correction of the past two weeks, we saw a spike in our Bullish (for the market) indicators to 30%, and the Bearish very nearly reached 0%. That coincided with the low (so far), though as we noted at the time, when the indicators get that extreme, they tend to keep going, and we usually see at least 50% bullish indicators at the ultimate low. Currently, they're back to about even and not telling us much either way.
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.
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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February
17, 2010,
7:45am EST
Neutral
From Jan 27,
1090
SPX
