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ON THE MARKET - BULLISH SENTIMENT STARTING TO BUBBLE

Pre-market - Monday 1-28-2013

Dr. John L. Faessel

ON THE MARKET

Commentary and Insights

Quote of the day

"Environmentalism is the successor to failed socialism as justification for all-pervasive rule by a politburo of experts. Only now, it acts in the name of not the proletariat - but the planet."

~ Vaclav Klaus ~

Czech President (and economist)

BULLISH SENTIMENT STARTING TO BUBBLE *

Wilshire 5000 & Dow Transports at ALL TIME Highs

Hyper Extended but the McClellan Remains in NEUTRAL

The McClellan Oscillator remains in neutral at plus 122. The Stochastics - slow K (95.55) and fast (99.42) indicates an overbought market suggesting a possible retreat. General picture looks very extended. Sentiment is steaming up - but with the McClellan in neutral 'it' suggests more room to surge.

Earnings Outlook Remains Solid

According to S&P Capital IQ's; many S&P 500 (SPX) companies are reporting solid results for Q4, but analysts are still cutting 2013 earnings views,

As of January 24 142 companies have reporting earnings and 66% have beaten estimates. Consensus estimate for Q4 EPS growth is that earnings will advance 4.45% led by financials. For 2013 they look for 9.24% EPS growth.

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

Let's keep this fact in the back of our mind; 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.

So a pullback because of the hyper-extended picture remains dominant, a back-and-fill breather looks to be the short / medium term play out - i.e. buy the retreat….

EuroLand continues in a Rut:

Unemployment in the 17-nation Euro bloc climbed for a fifth month to 11.9%, that's the highest jobless rate since records began in 1995. German unemployment data show the jobless rate there held steady for a fourth month at 6.9% according to 34 economists' forecasts in a Bloomberg News survey.

A Big Plus:

A big day in China clarifies the picture there as the Shanghai Composite Index (SHCOMP) rose 2.4% today to 2,346.51, that's the highest close since June 1. The CSI 300 Index (SHSZ300) climbed 3.1% to 2,651.86. The Shanghai index has risen 19.7% since approaching a near four-year low on December 3rd amid signs of an economic recovery. The CSI 300 rallied 26%.

"The market could be up 15% to 20% this year," So says the chief strategist for UBS in Shanghai. It has already gained about 4% in 2013.

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Last week the S&P 500 (SPX) Index of U.S. stocks surged to new highs adding 1.14% adding to the prior week's breakout

The S&P 500 (SPX) closed Friday at 1502.56. Last Friday it was 1485.

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

Short term price support is at 1491

Hourly channel support is at 1474

Then at deeper support of 1398.

November retreat lows / and Price support is at 1343.

The 50-day moving average support is at 1431

The 200-day moving average support is at 1396

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Greek, Spanish and Italian short and long-term bond yields continue to move lower;

· Greek 10-year yields have slipped to 10.05% - down from a high of 24.41%

· Italy 10-year (gross) bond yield - 4.17% off cycle highs of 7.29%.

· Spanish 10-year (generic) bond yield- 5.15% off cycle highs of 7.41%.

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Friday's key indicators and metrics:

Cycle highs or lows are in red

· McClellan Oscillator is NEUTRAL at plus 106 - Thursday's was plus and neutral 99.

· Japanese Yen - 1.0993 (lowest since June-2010)

· Euro - 1.3469

· 3-month $ LIBOR - 0.311

· VIX - 12.89

· Aussie Dollar - 1.0375

· Lumber (NASDAQ:CME) - 358.8

· CBOE Put / Call Volume Ratio - 0.88

· Natural Gas (Globex) - 3.444

· US Dollar Index - 79.820

· Swiss Franc - 1.0801

· Canadian Dollar - 0.9911

· Silver (COMEX) - 31.206

· Gold (COMEX) - $1656.6

· Copper - 3.6520

· Crude oil (NYMEX) - $95.88

· Brent Crude - $113.18

· The Treasury 10-year yield - 1.95%

· The 30-year Treasury - 3.13%

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* This week's Investor Sentiment.

The Bullishness / Bearishness complex is now registering extremely Bullish suggesting DANGER and a high possibility of a market retreat developing. Three months ago during the EURO Crisis & fiscal cliff etc. overall sentiment was indicating high distress. (That would be Bullish)

(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 jumped to 52.3% from 43.9%the prior week. It posted cycle lows of 22.2% on 7/23/2012 the lowest percentile since August 2010.

· The Market Vane (Market Letter Survey) posted a multi-year high of 68%, well past the highest bullish % levels of January 2010 and April 2010 - both intermediate market tops. In October 2007 to topped at 70% bullish.

· Consensus Index BULLISH rose to 64% from 56% 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 fell to 24.3% from 27.3%. Four-weeks ago it was 36.2%. On August 4th 2011 it posted cycle highs of 49.9% in Bearishness.

The Citigroup "Panic / Euphoria" Model rose from a plus 0.16 to a plus 0.21. 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 Neutral zone.

The BARRON's Confidence Index is 68.3 -. One-year ago it was 67.4.

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.