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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):
Today's Update: We will remain Neutral for now.
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.
After we got the expected weakness and volatility exploded
higher, we experienced 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. Since late May, we've looked at
quite a few bullish intermediate-term studies - we got
a major surge in pessimism, then several positive breadth
thrusts and positive price performance, all in the context
of an ongoing bull market. That has led to consistent
and significant gains when looking over the next 2 weeks to
1 month. However, June 4th's Payroll Report kneecapped
the nascent rally attempt and took us to a new closing low.
That is very unusual given the studies we discussed and
cannot be dismissed. But since we have seen a lot of
give-up among
Rydex traders
and
small options traders, and the S&P made another go at a breakout
above resistance, we were willing to give the
bullish outlook another shot. On June 22nd the S&P
fell back under its breakout level, and has since moved to a
new closing low, so we are standing aside in the
intermediate-term until a clearer picture emerges.
Recent Studies:
Two up days after a month without (6/04):
Bearish
Multiple breadth thrusts (5/28): Bullish
Extremely high ADX reading (5/27): Bullish
Oversold Indicator Score (5/21): Bullish
Sentiment:
Trend:
Back to mostly neutral readings.
Mixed long-term trend signals. Sup /
Res:
Other:
R: 1140; S: 1040 Nothing notable.
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Short-term Outlook
| Int-term Outlook |
Equity Updates |
Indicator Summary |
Commodity Updates
Equity Indicators - Updates and Extremes
On Monday we
looked at the behavior of the smallest of options traders. Last
week, their put/call ratio was relatively high, but it wasn't because
they were excessively pessimistic (i.e. buying put options), but rather
because they were not speculating on the upside (i.e. not buying call
options). That kind of
individual investor behavior is also on display in the latest sentiment
survey from the American Association Of Individual Investors (AAII).
The percentage of bears didn't rise a whole lot, but the percentage of
bulls dropped like a rock. In other words,
mom and pop aren't necessarily bearish, but they most certainly are "not
bullish".
The percentage
of outright bulls dropped to 25%, which is low from both an absolute and
relative perspective. On the chart above, we can see that the
current reading is one of the lowest since the bull market began, and
it's also more than 2 standard deviations away from the one-year average
(the solid green line). Typically, the
knee-jerk contrarian conclusion would be that this should be bullish for
the market. Instead of just guessing, tough, let's go back to the
survey's inception in 1987 and look at how the S&P 500 fared going
forward whenever the percentage of bulls was at or below 25% and also at
least 2 standard deviations below the one-year average.
Date 1
Week Later 2
Weeks Later 1
Month Later 2
Months Later 3
Months Later During the
shorter-term, the S&P actually struggled quite a bit. Over the
next week (using Wednesday-to-Wednesday closes to more closely reflect
the survey periods), stocks fell more than 70% of the time. Those early
losses took awhile to get digested, but we can see that during every
step up in time frame, the results got a little bit better. By the
time we got three months out, it was looking pretty good, with the S&P
positive every time but twice, and with a decent average return. So the current
drop in bullishness does not appear to be a good short-term sign
whatsoever, but longer-term it will likely lead to a much better
long-side risk/reward ratio.
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Short-term Outlook
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Equity Updates |
Indicator Summary |
Commodity Updates
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Equity Market Indicators
Notes: In mid- to late-May, we saw as many as 40% of our indicators at a bullish (for the market) and as little as 0% at a bearish one. That was the widest spread since March 2009, though it has gotten as high as 50% - 70% at some of the true panic lows over the years. On June 29th, we got another spike in bullish indicators above the 30% level...but again it's below what we've seen at many of the prior major lows.
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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July
1, 2010,
7:20am EST
Neutral
Since June 24, 1067
SPX
