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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 Over the past couple of months, we've discussed several
times why it's much more difficult to rely on breadth readings now than
it used to be. I'm not going to keep re-hashing the same reasons,
but suffice it to say that while still notable, extremes in breadth
statistics cannot carry as much weight as they used to prior to 2007 or
so. That said, yesterday triggered another notable extreme.
There were 6 times as many rising stocks as falling ones, but 21 times
more up volume than down volume. That kind of skew in buying
pressure will tilt the Arms Index (aka the TRIN) to extreme levels, and
it certainly did so yesterday. Let's go back to 1950 and look for any time that the
TRIN closed under 0.30 after the S&P 500 closed at at least a
three-month low sometime during the past three days.
Date 1
Week Later 2
Weeks Later 1
Month Later 3
Months Later 6
Months Later 1
Year Later It seems a little sketchy (OK, maybe a lot
sketchy) to use one day's performance to try to predict the next year,
but the one-year stats are pretty remarkable. The maximum drawdown
during the year following these signals showed a median of only -4.0%,
which is extraordinarily small. And the maximum gain sported a
median of +24.5%, more than six times as large. That's
exceptional. Only two of the
occurrences were what I would consider to be intermediate-term failures.
Out of the 12 trades, only those two closed more than 3% below the prior
multi-month low at any point during the next year. The failures
were in July 2002 and October 2008, and they were nearly immediate duds. Last week, we saw a
big drop in the percentage of individual investors who considered
themselves optimistic on the market's prospects, at least according to
the folks who respond to the survey given by the American Association of
Individual Investors (AAII). That dive in bullishness had historically been
short-term bearish, but longer-term bullish. The first part of
that played out as stocks continued to slide until yesterday, and that
once again caused another huge outflow in the few remaining bulls. As of the latest data, only 21% of individuals were
bullish on the market, which is one of the lowest readings we've seen in
the past 15 years. All of the other comparable ones occurred since
2003: Here are the dates, along with how the S&P performed
going forward:
1 Week Later
2 Weeks Later
1 Month Later 3
Months Later 6
Months Later Let's expand our horizon and look at how the market did
after any week in which 21% or fewer respondents were bullish.
This goes back to 1987, though prior to 1995 or so the data gets very
noisy, so many of the 47 instances were clustered prior to then.
1 Week Later
2 Weeks Later
1 Month Later 3
Months Later 6
Months Later Again, this data hasn't worked all that well as a
short-term indicator. But when we reach the sweet spot of 1-3
months, the time frame in which most of this data is effective, then we
start to see some non-random results. By three months later, a remarkable 98% of the weeks (46
out of 47) showed a positive return, and it averaged about 5 times
greater than what a random three-month period showed.
Over the past several months, we've been watching one of the most
speculative parts of the market, penny stock trading, to see if traders
were ramping up their activity - something which would have been a good
indicator of a market peak.
We never got it, and in fact the past month's decline has triggered the
opposite reaction. Total dollar volume in pink sheet stocks has
plummeted. These are the stocks that are so iffy they don't meet
the requirements to be listed on an established stock exchange.
The chart below shows total dollar volume in Over-The-Counter stocks,
with the green arrows highlighting other months over the past 15 years
that saw as low or lower activity.
The months were April 2001, September 2001, July 2002 through September
2002, and October 2008 through May 2009.
The April 2001 occurrence didn't lead to anything great, but the others
were around major lows in the market. It's fairly remarkable that
we've seen such a drop-off in commitment among these lottery-ticket
traders given the relatively small correction in stocks.
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Short-term Outlook
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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
8, 2010,
8:20am EST
Neutral
Since June 24, 1067
SPX
Bearish For The Market
Bullish For The Market
