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Go to: Top | Short-term Outlook | Int-term Outlook | Equity Updates | Indicator Summary | Commodity Updates
Short-term
Outlook (1-5 Days):
Go to: Top | Short-term Outlook | Int-term Outlook | Equity Updates | Indicator Summary | Commodity Updates
Intermediate-term Outlook (1-3 Months):
What: We will move back to Neutral if the S&P
500 cash index closes below 1065 or trades below 1040 on an
intraday basis.
Why: On
April 15th, the Dumb Money pushed up to 75%, and the
spread between that and the Smart Money reached to -45%.
In addition, we got a tremendous surge in the number of
bearish (for the market) Indicators At Extremes.
That's the kind of development that doesn't necessarily
indicate an imminent market peak, but it does almost always
mean that any further short-term gains will be erased.
Now that that has happened, and volatility has exploded
higher, we have a very unusual situation with the "shock
day" on May 6th. We looked at somewhat similar days
on
May 7th, and the conclusions were clear - a
short-term rally was likely, probably being capped at a
62% retracement of the crash, then a re-test of the
panic lows.
We've looked at quite a few intermediate-term bullish
studies over the past week, and given Thursday's gap
up open of more than +2% from a multi-month low, history suggests we've seen the
worst of the selling for the next several weeks at least.
That doesn't mean it won't be volatile, but we should see a
trend of generally rising prices.
Recent Studies:
Multiple breadth thrusts (5/28): Bullish
Extremely high ADX reading (5/27): Bullish
Oversold Indicator Score (5/21): Bullish
Sentiment:
Trend:
Many examples of extreme pessimism.
Still pointing up. Sup /
Res:
Other:
R: 1180; S: 1056 Nothing notable.
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Short-term Outlook
| Int-term Outlook |
Equity Updates |
Indicator Summary |
Commodity Updates
Equity Indicators - Updates and Extremes
Thrust In Breadth, Then Double -1% Days The outlook for
the (somewhat) intermediate-term, around 2 weeks to 1 month or so, has
been quite positive since last week for several reasons which we've
discussed in these Reports: From
May 21st: * First
cross below the 200-day average in at least 200 days *
Extremely oversold put/call ratio, Stock/Bond Ratio and
Intermediate-term Indicator Score From
May 24th: * Rydex
traders went all-out bearish From
May 25th: * Dumb
Money Confidence dropped under 30% and the futures were gapping down
-2%. From
May 27th: * The ADX
indicator reached a level where trends end about 86% of the time. From
May 28th: * The
multi-month low in the S&P, then thrust in breadth, suggested higher
prices ahead. So we had a
setup where stocks were in a bull market (objectively defined as an
upward-sloping 200-day moving average on the S&P 500), we were grossly
oversold according to a myriad of sentiment and technical indicators,
and then we got a buying thrust that was historically meaningful. And yet we've
dropped at least -1% the past two days, very nearly wiping away all that
goodwill created last Thursday. It's no surprise
that there are few precedents. We'd never find anything that
matched our current scenario exactly, but let's go back and see if
there's ever been a time when the S&P hit at least a three-month low,
enjoyed a major upward thrust in breadth (an Up Volume Ratio > 80%),
then suffered two consecutive 1% down days. Turns out there
have been a few. The table below shows the S&P's performance going
forward:
Date 1
Day Later 1
Week Later 2
Weeks Later 1
Month Later 3
Months Later About the only
pattern I can discern from this is that, ironically, the bulls had a
better chance at success if the S&P continued to fail in the short-term. The three times
the index kept dropping over the next few days (1966, 1982 and 2009), it
bottomed sometime in the next 7 days and went on to score decent-to-huge
gains over the next 1-3 months. The two times
the S&P jumped in the very short-term (1974 and 2002), they both turned
out to be sucker rallies and the S&P suffered over the next few months. It's really,
really tough to read much into five occurrences, much less two or three
depending on how the next few days go. Supposedly, from the table
above, a continued melt down would be a good longer-term sign, and
perhaps it will be eventually, but I don't want to maintain a bullish
outlook if we close at another three-month low. At that point,
we'd have to see another overwhelming sign of excessive pessimism, or
renewed evidence of eager buying pressure (that hopefully doesn't turn
out to be another whipsaw).
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Short-term Outlook
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Equity Market Indicators
Notes: In mid-April, we got a huge spike in the number of bearish (for the market) indicators, and after a tiny hiccup, stocks went on to make another high. It was choppy and took longer than usual, but it finally resulted in those gains begin given back per usual.
Now we've seen the opposite condition, with only one bearish extreme and more than 40% of our indicators at a bullish extreme on May 24th. That's the most since March 2009, though it has gotten as high as 50% - 70% at some of the true panic lows over the years. We've certainly seen enough extremes for a tradable bottom - just not a maximum reading.
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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June
2, 2010,
7:55am EST
Neutral
From May 25, 1049
SPX
50% Bullish
From May 27, 1093
SPX
