ALERT: McClellan Oscillator Posts Narrow Range Days* - Big Day Looms

Monday 1-3-2011

 

Dr. John L. Faessel

ON THE MARKET

Commentary and Insights

 

Quote of the day

  “Let his days be few; and let another take his office.”

~ Psalm 109:8 ~

~

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ALERT: McClellan Oscillator Posts Narrow Range Days*

 

A “Tell”... Lumber Futures in Breakout**

 

The Citygroup “Panic / Euphoria” Model ticks cycle highs BUT remains in the mid-neutral zone well away from the euphoria levels.

 

Let’s remember that the January Effect / Santa Rally does not necessarily mean that we dance the light fantastic well past Q1 2011. The record shows that it’s a coin flip so let’s ride the momentum of the season, but stay loose. The overview of BULLISH longer-term investor sentiment readings are either at or near cycle highs and warn of market risk but I don’t see any euphoria (warning ) yet from the Citygroup “Panic / Euphoria” Model. Friday’s McClellan Oscillator (favorite overbought / oversold indictor), registered a neutral plus 44 that was one (1) tick below Thursday’s plus and neutral 45. Back-to-back “Narrow-Range” postings of a few points in the McClellan are indicative of big 2% to 3 % moves in the offing. Usually this “big move” occurs within a couple of days and most often in the direction of the recent short-term trend; in this case it would be up. Early futures are up 10 S&P 500 pts at this posting. I think we have a big push about to fire in the market over the next few days. There's plenty of room to get really overbought in the McClellan Oscillator and while we've had recent low volume advances the market has been well bid. Big % moves in EuroLand especially from the banking sectors will set the stage for a hot new year open.

 

Short term resistance that looks to be breached at the open is at is at S&P 500 (SPX) 1262.  The next major resistance (SPX) 1313 (neck line bounce highs on August 8, 2008)

 

Short term price support in the (SPX) is 1252 / 1254, then at1246, 1233, 1220 and 1200. The 50-day moving average support is at 1215. 200-day moving average support in the (SPX) is 1146. The former major resistance and now key price support in the (SPX) is at 1146 / 1150.

 

Of note:

·        ** Leading indicator, Lumber futures moved to new 9-month highs and are a few ticks away from January 2006 &March 2007 levels. Importantly, let’s also register that the breakdown in Lumber occurred in 2004 and broke down big-time and was off from 450’s to “the” high ticks of 300’s of 2006 & 2007. It was the warning that not many investors took home to mama. The lows of 2009 were in the 130’s.  Lumber futures closed at 302 on Friday.

 

·        The Canadian Dollar (the loonie) moves to a premium over US Dollar back to the June 2008 level. November 6, 2007 the loonie ticked 1.078 to the Dollar. With skyrocketing and no end in sight US debt the Canadian loonie and things Canada looked especially appealing. The Canadian banks and their real estate went through the "debacle" without a hiccup because of sound fiscal and government policies. With Canada's huge natural resources / oil and gas / hydropower and mining complex as a firm foundation in a needy energy and industrial metals world the loonie looks to me to go to new all-time highs versus the US Dollar.

 

News to make your head spin:  Pakistan makes two nuclear weapons available to Saudi Arabia says intelligence news service (and one of my favorite websites) DEBKAfile. Saudi Arabia has jumped ahead of Iran by obtaining the use of two Pakistani nuclear bombs or guided missile warheads. DEBKAfile's Gulf sources believe the weapons are ready for delivery upon royal summons in Pakistan's nuclear air base at Kamra in the northern district of Attock. Already delivered is a quantity of Pakistan's Ghauri-II missile with an extended range of 2,300 kilometers. They are tucked away in silos in the underground city of Al-Sulaiyil, south of the capital Riyadh. (DEBKAfile was founded by a team of journalists in June 2000 as an independent Internet Web site, providing an intelligence and security news service.) http://www.debka.com/about/

 

Key indicators and metrics:

 

·                       Friday’s McClellan Oscillator is in neutral @ plus 44

·                       The Treasury 10-year 3.3050

·                       3-month $ LIBOR at 0.303

·                       CBOE Put / Call Volume Ratio – 0.99

·                       Euro – 1.3364

·                       VIX – 17.75

·                       US Dollar Index – 79.29

·                       Copper – 4.4395

 

 

Key WEEKLY SENTIMENT (i.e. CONTRARY INDICATOR) data points:

 

BULLISH longer-term investor sentiment consensus readings are near or at cycle highs and are now warning of hazard. Taken in total they are a significant concern and need monitoring. 

 

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

 

·        The Consensus Index BULLISH investor sentiment survey rose to 71% matching the high optimism of of the recovery cycle that was posted on 11-15-2010.  It was 68% last week. The multi-year highs in Bullish sentiment of 76% were reached in the first week of May 2007 just prior to the huge down-leg.

 

·        The Market Vane (Market Letter Survey) posted new cyclic highs of BULLISHNESS with a read of 62%. It had not seen this level since late 2007 when the Market Vane Bullish survey was above 70%.

 

·       The American Association of Individual Investors [AAII] Investor Sentiment Survey BULLISH fell a chunk to 51.6%. The prior week was at new cycle highs 63.3%. The low of the May selloff cycle at was at 30.1% [The lows registered on March 9^th 2009 were an historic low posting of 18.9% only BULLISH.]

 

No BARRON’s Confidence Index was posted last week.

 

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.