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Dr. John Faessel
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Dr. John L. Faessel is a seasoned and respected Wall Street professional with industry-wide recognition for expertise in market strategy and analysis. He is widely recognized for his insights in public companies. For over 20-years Dr. Faessel’s ON THE MARKET reports have been widely distributed... More
  • ON THE MARKET -- The Market Looks To Be Losing Steam 0 comments
    Feb 11, 2013 11:22 AM

    Pre-market - Monday 2-11-2013

    "The most important single central fact about a free market is that no exchange takes place unless both parties benefit."

    Milton Friedman

    Dr. John L. Faessel

    ON THE MARKET

    Commentary and Insights

    Quotes of the day

    "The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

    ~ Ben Bernanke in 2007 ~

    Federal Reserve Chairman

    BULLISH SENTIMENT continues to run HOT * but the McClellan Oscillator is in Neutral

    The Stock Market continues to advance albeit on low and declining volume. Over the last 15-days of trading there have been 4-days of distribution and those points to institutional selling. The near straight up extended trajectory has 'price' near the top of the channel that extends off the mid-November lows. Sentiment is running hot, but off its recent highs of the last few weeks* and the McClellan Oscillator is in Neutral - so my favorite overboughtness / oversoldness indicator suggests more upside could be easily absorbed by the market. The Stochastic's - slow K (94.49) and fast (98.38) indicates an overbought market suggesting a possible retreat. Also the Bond market and Dollar technical's that were on life support just recently have eased off the critical list.

    Also of note is that there have been some unusually large positioning of 'puts' in defensive set-ups in the and Select SPDR- Financial (NYSEARCA:XLF) and Russell 2000 index (NYSEARCA:IWM) but naturally there is a latent buy built into the other side of the option that's bullish. These big 'hedges' have been used by savvy option players who have been out in front of the news re the Euro Crisis. Note the Key Euro Bond yields have been creeping up recently.

    The Santa Clause rally continues - but looks to be losing steam…

    Yet:

    The S&P 500 (SPX) is priced at the lowest multiple of earnings at a bull-market peak since World War II, roughly 14.5 X what companies earned over the past year, versus 28.2 X at the 2000 peak, or 16.8 X in 2007. Also; Cash makes up a whopping 14% of corporate assets today, 2X the twenty years ago. Yet capital expenditure accounts for just 16.4% of cash, well below the 28.1% average since 1990. I can read this as worry about what investors and corporate America see going on - from my perch we & Europe are being led by a bunch of economic imbeciles.

    Notable:

    According to the U.S. Commerce Department - China surpassed the U.S. to become the world's biggest trading nation last year. U.S. exports and imports of goods last year totaled $3.82 trillion. China's was $3.87 trillion said customs administration re 2012 amounted to

    Once again: Two key items to keep in recall;

    On December 31 and January 2 - 90% of stocks advanced on back-to-days back suggests that the very strong rising tide will continue to search. Usually, after back-to-back 90% up days the market has advanced an additional 6.8% within a month 83% of the time - and 12.8% three-months later 100% of the time.

    S&P 500 (SPX) profits are set to exceed $1 trillion in 2013, nearly 30% higher than when the index last hit a high in 2007. Even if PE multiples don't expand, the (SPX) is on pace to hit a record. See Bloomberg http://goo.gl/LbQDr

    ~~~~~~~~~~~~~

    Another repeat if you missed it last week - a MUST READ - From Bill Gross's Monthly PIMCO letter:

    (1) Position for eventual inflation: the end stage of a supernova credit explosion is likely to produce more inflation than growth, and more chances of inflation as opposed to deflation. In bonds, buy inflation protection via TIPS; shorten maturities and durations; don't fight central banks - anticipate them by buying what they buy first; look as well for offshore sovereign bonds with positive real interest rates (Mexico, Italy, Brazil, for example).

    (2) Get used to slower real growth: QEs and zero-based interest rates have negative consequences. Move money to currencies and asset markets in countries with less debt and less hyperbolic credit systems. Australia, Brazil, Mexico and Canada are candidates.

    (3) Invest in global equities with stable cash flows that should provide historically lower but relatively attractive returns.

    (4) Transition from financial to real assets if possible at the margin: buy something you can sink your teeth into - gold, other commodities, anything that can't be reproduced as fast as credit. Think of PIMCO in this transition. We hope to be "Your Global Investment Authority." We have a product menu to assist.

    (5) Be cognizant of property rights and confiscatory policies in all governments.

    http://www.pimco.com/EN/Insights/Pages/Credit-Supernova.aspx

    ~~~~~~~~~~~~~~~~~

    Last week the S&P 500 (SPX) Index of U.S. stocks surged to new highs adding another 0.31% to the prior week's continuing breakout.

    The S&P 500 (SPX) closed Friday at 1517.93. A week ago last Friday it was 1513.14.

    The October 2007 (SPX) all-time highs and price resistance is at 1576

    Short term price support is at 1515

    Hourly channel support is at 1503

    Then deep channel and trend line support of 1404.

    November retreat lows / and Price support is at 1343.

    The 50-day moving average support is at 1456

    The 200-day moving average support is at 1403

    ~~~~~~~~

    Greek, Spanish and Italian short and long-term bond yields moved higher again last week off their January 11th lows;

    · Greek 10-year yields have slipped to 10.83% - down from a high of 24.41%

    · Italy 10-year (gross) bond yield - 4.60% off cycle highs of 7.29%.

    · Spanish 10-year (generic) bond yield - 5.39% off cycle highs of 7.41%.

    ---------------------------------------

    Friday's key indicators and metrics:

    Cycle highs or lows are in red

    · McClellan Oscillator is NEUTRAL at plus 9

    · US Dollar Index - 80.316

    · Japanese Yen - 1.0777

    · Euro - 1.3366

    · Swiss Franc - 1.0907

    · 3-month $ LIBOR - 0.311

    · VIX - 13.02

    · Aussie Dollar - 1.0286

    · Lumber (NASDAQ:CME) - 387.8

    · CBOE Put / Call Volume Ratio - 0.90

    · Natural Gas (Globex) - 3.272

    · Canadian Dollar - 0.9964

    · Silver (COMEX) - 31.441

    · Gold (COMEX) - $1666.9

    · Copper - 3.7595

    · Crude oil (NYMEX) - $95.72

    · Brent Crude - $113.18

    · The Treasury 10-year yield - 1.95%

    · The 30-year Treasury - 3.17%

    ~~~~~~~~~~~~~~~~~~~

    * This week's Investor Sentiment.

    The Bullishness / Bearishness complex is continuing to post highly Bullish reads suggesting DANGER and a significant possibility of a market retreat. During the EURO Crisis & fiscal cliff rumbles overall sentiment was indicating high distress; a bullish signal.

    (High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.)

    · The American Association of Individual Investors [AAII] Investor Sentiment Survey of BULLISHNESS fell to 42.8% from 48%. The survey posted recent highs of 52.3% three weeks ago. It posted cycle lows of 22.2% on 7/23/2012 the lowest percentile since August 2010.

    · The Market Vane (Market Letter Survey) once again registered a multi-year high of 69% well past the highest bullish % levels of January 2010 and April 2010 - both intermediate market tops. In October 2007 it topped at 70% bullish.

    · Consensus Index BULLISH rose to new recent highs of 71% up from 70% the prior period. It posted Cycle highs @ 73% about four-months ago.

    The exclusive CONSENSUS BULLISH SENTIMENT INDEX is the premium gauge of positions and attitudes of major professional brokerage firms and advisors as interpreted and recorded by CONSENSUS, INC.

    · The AAII Investor Survey of BEARISHNESS rose to 29.6% from 24.3 the prior period. Six-weeks ago it was 36.2%. On August 4th 2011 it posted cycle highs of 49.9% in Bearishness.

    The Citigroup "Panic / Euphoria" Model stayed at a plus 38%. At the end of June 2011 it ticked cycle lows of minus 0.31 in the Panic mode. The model is still registering in the high end of the Neutral zone.

    The BARRON's Confidence Index is 68.2 -. One-year ago it was 67.3.

    The Confidence Index is the premier measure of how the bond markets trillions (total global is around $91 trillion and USA is 39% of that) are allocated: (The bond market is twice the size of the stock market.) The Index is the High-grade bond index divided by intermediate-grade index. A decline in latter vs. former - generally indicates rising confidence, pointing to higher stocks.

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