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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 move to 25% Bullish if
the S&P 500 closes above 1103, and subsequently turn back to
Neutral if it then closes below 1060.
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. In late May, we 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. After a brief respite, June 4th's Payroll Report kneecapped
the rally attempt and took us to a new closing low.
In the process, we've seen very
oversold conditions and some give-up among
Rydex traders and
individual investors, so we'll be looking for the price
action to improve to re-establish a bullish outlook.
That would include either a successful test of the recent
lows, or a recovery high above 1100 to break the recent
pattern of lower highs and lower lows in the S&P 500.
Recent Studies:
No Fidelity funds better than cash (7/06):
Bullish
Rydex traders giving up (7/07): Bullish
AAII survey shows low bullishness (7/08): Bullish
Sentiment:
Trend:
Back to mostly neutral readings.
Mixed long-term trend signals. Sup /
Res:
Other:
R: 1140; S: 1040 Nothing notable.
Go to: Top |
Short-term Outlook
| Int-term Outlook |
Equity Updates |
Indicator Summary |
Commodity Updates
Equity Indicators - Updates and Extremes
AAII Bull Ratio 4-Week Average The "noisiest"
sentiment survey we follow comes from the American Association of
Individual Investors (AAII). As we saw over the past few weeks,
there attitude on the market can shift from
extreme pessimism to not-so-much in as little as a
week's time. Because of that,
we also post a 4-week average of the Bull Ratio (Bulls / (Bulls +
Bears)). That smoothes out the weekly fluctuations and helps to
form a more intermediate-term view of those investors' attitudes. This week, that
average dropped to the lowest level in a year, under 39%.
Historically, that can be considered excessive...especially when the
market is still in a bull market (defined objectively as a rising
52-week moving average on the S&P 500).
Since the
survey's inception in 1987, there have been 8 other times we've seen
this situation. The table below
shows each instance when the 4-week
average of the Bull Ratio crossed below 39% while we were still in a
bull market environment, along with how the S&P 500 fared going forward:
Date 1
Month Later 2
Months Later 3
Months Later 6
Months Later 1
Year Later As we might
expect, the results going forward were notably bullish across most time
frames, especially from three months and longer. Except for the
last one, that is. Extremes in
sentiment can get "trapped" during times of major trend changes.
That's why considering the overall market context can be so vitally
important. By mid-January
2008, we were discussing the implications of bear-market action.
The 52-week average of the S&P was threatening to turn down, the S&P
itself had violated clear support, and it was unable to rally well from
shorter-term oversold conditions. And indeed that behavior took
root in a new bear market, leaving us with a failure of the AAII extreme
to generate any kind of positive momentum. In the months ahead, it
became even more extreme, but by then it was clear we were in a bear
market, and "extreme pessimism" takes on a whole new definition. Now we're in a
somewhat similar situation. The S&P is trading below its 52-week
average, which I don't really care about, but that average is very close
to turning down, which I do care about. And the June decline -
below the May lows which "should" have held - was an ominous warning
sign, giving us a pattern of lower highs and lower lows, just like in
January 2008. So far, the market is still bouncing OK from
shorter-term oversold conditions, so at least we're hanging on there. But if we fail
to follow through to the upside from here and set another round of new
lows, we need to toss out extremes like this current AAII study, as
we're going to need to see truly stretched readings of pessimism to
expect a bounce at that point.
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Short-term Outlook
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Equity 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
23, 2010,
7:30am EST
Neutral
Since July 20, 1057
SPX
Bearish For The Market
Bullish For The Market
