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ON THE MARKET Commentary and Insights

Monday 5-16-2011


Dr. John L. Faessel


Commentary and Insights


     Quote of the day

“Fathom the hypocrisy of a Government 
that requires all citizens to prove 
they are insured……but not all
must prove they are citizens.”

~ author unknown ~




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The US stock markets are still reverberating off the technical rip that slammed the industrial metals and the shocked the currencies; importantly support has held up. In fact, so far, the big picture and today's setup is constructive. Considering that the S&P downgraded the debt of the United States of America and the largest bond fund in the world is heavily short treasuries it's a wonder? But, let's once again remember that just 2- weeks ago Friday the Dow Jones Industrials, Dow Transports and the Dow Jones Utility Average simultaneously reach new recovery highs, significantly; the Dow Transports, S&P Mid-cap and Russell 2000 posted ALL TIME HIGHS. That's mighty strong medicine.


The McClellan Oscillator (favorite overbought / oversold indicator) is in neutral, put / call volume ratio’s remain rather subdued, Bullish sentiment has dropped considerably so these important data points suggest that the market has integrated not only the global debt extravaganza and sharp currency reversals, but the hard down metals pullback remarkably well.


Today's news of the day that the IMF head and leading French Socialist presidential contender Dominique Strauss-Kahn has been charged with sexual assault of a maid in his hotel room makes one wonder what goes on with that ilk, but as far as the market is concerned "it" will likely be integrated without much ado.


Short term price support in the in the S&P 500 (SPX) is at 1337 and then a few ticks lower better support is at 1329. One month ago Monday's (S&P downgrade) low and price support is at (SPX) 1249.05. The 50-day moving average support in the S&P 500 (SPX) is at 1323 and 200-day moving average support is 1232. The (SPX) closed at 1340.24 on Friday.


Short-term resistance in the S&P 500 (SPX) is at 1340, then at 1349. A more rigid layer lies at 1370. The next resistance level that goes back to May 2008 is at 1440. An all-time high in the S&P 500 (SPX) is 1576.


Tracking the Bond Markets $ 91 Trillion

The BARRON’s Confidence Index ** last week came in at 78.8 up a few ticks from last week’s posting of 78.3. Three-months ago it posted new cycle highs of 83.7. The recent high numbers “at or near” the 80’s are at levels not seen since the fall of 2007. When you consider the news backdrop of the last few months this is pretty remarkable.


Friday’s key indicators and metrics:


·                       Friday’s McClellan Oscillator is Neutral @ minus 44

·                       Friday’s Gold (COMEX) $1493.6

·                       Friday’s Silver (COMEX) was 35.011

·                       Crude oil (NYMEX) $99.65

·                       The Treasury 10-year yield 3.187

·                       3-month $ LIBOR at 0.261 (15-month lows)

·                       CBOE Put / Call Volume Ratio – 0.94 / Thursdays 0.84

·                       Euro – 1.410

·                       VIX – 17.07

·                       US Dollar Index – 75.94

·                       Canadian Dollar – 1.0321

·                       Copper – 3.975

·                       Aussie Dollar – 1.0543




Last week Consensus overview of Bullish Investor Sentiment fell again from the uptick of the prior weeks. It is generally well off the high bullishness established in January and February.


(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 slid to 30.8% from the 35.5% of last week. Three-weeks ago it was 37.9%.. In January it ticked new cycle highs of 63.3%. The low of the May 2010 selloff was at 30.1% [The lows registered on March 9th 2009 were an historic low posting of only 18.9% BULLISH.]

·       The AAII Investor Survey of BEARISH sentiment increased to 35.5% more bearish that the 31.9% of last week. The February lows were 25.6%. January’s BEARISH sentiment cycle lows were at 16.4% and that was lows not seen since 2005. The highest Bearishness occurred 6 months ago when it ticked the summer “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...


·        Consensus Index BULLISH investor sentiment was 70% down a bit from the 73% posting of last week. The recovery cycle high at 76% was established 10-weeks ago. 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 Market Vane (Market Letter Survey) readings again ticked 64% one month ago it was 57%. The survey posted new cycle highs   in bullishness at 68% three-months ago. Market Letter writers have reversed off the levels of the Bullishness seen in late 2007 when the Market Vane routinely registered routinely above 70%.


·       The Citygroup “Panic / Euphoria” Model eased to a plus 0.23 from last week’s 0.28. 3-weeks ago it registered cycle high of a plus 0.38 that was last week, still in the neutral zone but, close to the euphoria zone. The model moved from panic into neutral in October 2010During the dot-com bubble highs of December 1999 the model posted ALL-TIME highs of La-La-Land euphoria at 1.70.


** 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 ability of this key indicator of market health to post near new highs bodes well for the economic recovery and for stocks to continue forward. One year ago the index was 77.5.


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