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ON THE MARKET - Not a Chernobyl...

Monday 3-21-2011

 

Dr. John L. Faessel

ON THE MARKET

Commentary and Insights

 

Quote of the day

“The fall of a great nation is always a suicide"

Arnold Toynbee

~~~~~

To receive my Best Ideas for 2011 send request: Dr.Faessel@onthemar.com

 

 

Not a Chernobyl...

 

Bullish Market Sentiment Continues Deep Slide*

 

Last Wednesday mid-session when the worst of the news out of Japan was hitting the street and the market was collapsing a confluence of indicators came together suggesting that "this" was likely a bottom or at least a tradable low. The stage was set by the McClellan Oscillator that was registering in the minus 300s (finishing the day at minus 269), put / call volume ratios at 1.18, a VIX at 31 and most importantly the TICK posting a hugely inner day oversold reading of minus 1581. It hardly gets any better than that. At that midday moment the lows in the S&P 500 (SPX) was at 1249 while the Dow was at 11,555. (For perspective I might add that there hasn't been a deep low in the TICK of that magnitude since some of the "terror" readings during the worst of 2008.)

 

Since then the news flow has been improving off the "meltdown" worries. The UN action in Libya is being viewed as a positive for oil flows from the region and there hasn't been anything negative coming out of the lands of the PIGS with their dire debt restructuring efforts. Good luck on that one!

 

All of the above was overlaid on top of a significant drop in bullish sentiment that had been backing off from cycle high levels over the last five or six weeks (that we have been monitoring).*

 

As I mentioned over the last few weeks, “Unless all hell breaks out I'm “still” a believer that we retrench.”   Hell, certainly on the north eastern coastline of Japan, but not in the view of Market’s “big picture”.

 

So, we start the day with S&P 500 futures up $15 but with lots of stairstep resistance up above. The 50-day moving average resistance is at S&P 500 (SPX) is at 1302. That's also where support was found back on February 24 (Egypt turmoil). Consequently (SPX) 1300 will almost certainly be a tough barrier to bore through and will likely take a few tries. From a technical viewpoint some right side work on the charts / back-and-fill look to be necessary.

 

The support lows of Wednesday are at 1249. It that if blown we could see a big break to (SPX) 1200. Additional key “price” resistance is at (SPX) 1275.

200-day moving average support is at 1183.

 

Solid resistance in the in the S&P 500 (SPX) is at 1300. Then a tougher barrier lives at (SPX) 1325 and 1332. The up top resistance put in on 2/18/2011 just before the Mid-east turmoil & Crude oil supply worries developed is at (SPX) 1343.

 

Friday’s postings of key indicators and metrics:

 

·        Friday’s McClellan Oscillator is in neutral @ minus 82

·        Friday’s Gold (COMEX) $1416.1

·        Crude oil (NYMEX) $101.07

·        The Treasury 10-year 3.27

·        3-month $ LIBOR at 0.309

·        CBOE Put / Call Volume Ratio – 1.02

·        Euro – 1.41

·        VIX – 24.4

·        US Dollar Index – 75.9

·        Canadian $ 1.03

·        Copper – 4.329

 

Tracking the Bond Markets $ Trillions: The BARRON’s Confidence Index ** came in at 79.9. Last week’s number was 81.3. Six-weeks ago it posted new cycle highs of 83.7. The recent numbers have just backed off levels not seen since the fall of 2007. One year ago it was 75.4 - two years ago it was 58.6.

 

* Key WEEKLY BULLISH SENTIMENT (i.e. CONTRARY INDICATOR) data points are continuing to wane.

 

* Last week’s consensus overview of Bullish Investor Sentiment dropped dramatically and is now well off the highs of about six (6) weeks ago due to depressing effect of the consequences of the massive 9.1 Japanese earthquake, the mayhem / now war in the middle-east, (Libya, Egypt, Tunisia, plus the Greek, Portugal and Spanish debt default risk. All of these should keep the “wall of worry” intact for awhile.

 

(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 sank again to 28.5% from last week’s 36%. Just over two months ago it ticked new cycle highs of 63.3%. The low of the May selloff cycle at was at 30.1% [The lows registered on March 9th 2009 were an historic low posting of 18.9% only BULLISH.]

 

·        The Market Vane (Market Letter Survey) fell perceptibly to 56% from last week’s 62%. Five-weeks ago it posted new cycle highs in Bullishness at 67%. Market Letter ‘Bullishness’ as tracked by Market Vane registered above 70% in late 2007.

 

·        Consensus Index BULLISH investor sentiment came in at 64% after ticking recovery cycle highs at 76% two (2) weeks ago. Notable is that the multi-year highs in Bullish sentiment of 76% were first reached in the first week of May 2007 just prior to the massive down-leg.

 

·        The AAII Investor Survey of BEARISH sentiment came in at 40.1 well up from the 32.3% the prior week. Five weeks ago it posted 25.6%. Three 3-months ago it posted cyclic Bearish lows at 16.4% that were lows not seen since 2005. The highest Bearishness occurred just over 6-months ago when it ticked the summer 2010 “market retreat” high at 57.1%. Item of note: In August 1987 it ticked the lowest low ever recorded at 6% BEARISH – Remember what happened on October 19, 1987...

 

·       The Citygroup “Panic / Euphoria” Model ticked down another chunk to a plus 0.1 from the plus 0.13 of the prior week. Cycle highs of a plus 0.32 were posted in January. Euphoria is measured as occurring when it has a posting of over a plus 0.45. It’s interesting to note that the highs of “euphoria” were registered in March 2008.

 

** The Confidence Index is the premier measure of how the bond markets trillions are allocated. (Total global (in US $) money in bonds is around $91 trillion and USA is 39% of that) The Index is compiled by dividing the “high-grade” bond index by “intermediate-grade” index. A decline in latter vs. former generally indicates rising confidence, pointing to higher stocks. A rising ratio indicates investors are demanding a lower premium in yield for increased risk and so are showing confidence in the economy.

 

(The bond market is twice the size of the stock market.) The ability of this key indicator of market health to post new highs bodes well for the economic recovery and for stocks to continue forward. One year ago it was 75.4

 

For my Best Ideas for 2011 please send an e-mail request to: Dr.Faessel@onthemar.com