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ON THE MARKET > Commentary and Insights


Tuesday 6-21-2011


Dr. John L. Faessel


Commentary and Insights


     Quote of the day
“Governments never learn. Only people learn.”
Milton Friedman




Stock Market now “up” to Neutral “overbought /oversoldness”


Bullish Market Sentiment upticks off deep resounding fear


Major indexes hang near the 200-day moving averages


It's been a hellish world out there recently and the stock market has pretty much tracked the global news "horror show.”  Natural disasters and the worldwide debt bomb (save Asia) have been on the front burner, but the stock market has not come totally unglued with only a 6% backup. The indicators I look at suggest that the lows could be in. We came off deep oversoldness with the McClellan at minus 207, a classic deep TICK near minus 1500, 13 days of put/call volume ratios above 1.00 and market BULLISH sentiment that had evaporated to deeper lows than last year’s May backup. And yet, were only down 6%. All the major indexes except the NASDAQ and also the NDX held above their 200 day moving averages. The NASDAQ and the NDX are just a tad below the 200 day. Also of note; the configuration of the McClellan chart shows classic higher lows “trending” that has almost always indicated a low that was in.


There's much concern about the Greek mess that on its own is containable, but the worry is that might spread to Spain, Portugal, Ireland and even France and Italy. Can those industrious German ‘bail out’ the whole bunch of ‘em. Certainly the Greeks want them to? They're so mad at the prospect of having to work that they warned of burning down Athens. Kind of reminds me of the Los Angeles "Watts riot" back in the 60s when the rioters burnt “their” town down...


In any event the stock market has absorbed a lot and there is still plenty to play out, but the "cheap" market will, and has held up.


Short term price resistance in the in the S&P 500 (SPX) is just above 1279. The 50- moving average resistance in the S&P 500 (SPX) is at 1320.97.


Short-term support in the S&P 500 (SPX) is 1269.  Then Thursdays low of 1258.07. Nine (9) -weeks ago Monday's low (S&P downgrade of our debt) and price support is at (SPX) 1249. The 200-day moving average support is 1259. The (SPX) closed Monday at 1278.36.


Tracking the Bond Markets $ 91 Trillion

Alert - The BARRON’s Confidence Index ** fell to 10-month lows of 77.1%.  It was 77.7 last week. Just over three-months ago the Confidence Index posted new cycle highs of 83.7, but ‘so far’ during this cycle it never did reach the 2008 highs of 85 & 86.


Cycle highs or lows indicated in RED


Monday’s key indicators and metrics:


·                 McClellan Oscillator is in Neutral @ minus 27  

·                 Copper – 4.075

·                 Gold (COMEX) $1541.5

·                 Silver (COMEX) 36.071

·                 Crude oil (NYMEX) $100.22

·                 The Treasury 10-year yield 2.982

·                 3-month $ LIBOR at 0.246 (5-year / forever lows)

·                 CBOE Put / Call Volume Ratio – 0.88

·                 Euro – 1.4267

·                 VIX – 19.90

·                 US Dollar Index – 74.6

·                 Canadian Dollar – 1.018

·                 Aussie Dollar – 1.454

·                 Swiss Franc – 1.182


* Key WEEKLY BULLISH SENTIMENT (i.e. CONTRARY INDICATOR) data points continue to show significant fear in the market.


Last week Consensus overview of Bullish Investor Sentiment upticked slightly off the “it’s a horror show” stage. 


Prior to yesterday’s 0.88 the market flashed 13 straight days of Put / Call Volume Ratios above 1.00 demonstrating the extent of the fear in the market, highlighted by last Wednesday’s 1.36.   It was mid May 2010 since there was a ratio above last Wednesday’s number of 1.53.


(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 was up to 29% from the cycle lows of 24.4% the prior week. In January it ticked new cycle highs of 63.3%. [The lows registered on March 9th 2009 were an historic low posting of only 18.9% BULLISH.]

·       The AAII Investor Survey of BEARISH sentiment fell a tad to 42.8% from the cycle highs bearishness of 47.7% the prior week. January’s BEARISH sentiment cycle lows were at 16.4% and that was lows not seen since 2005. The highest Bearishness occurred 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 down another few percentile to 46% from the 50% posting of  the prior week. Seven-weeks ago it was 73%. The recovery cycle high at 76% was established 2-monts 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) was up a tick to 51% from last week’s 50% the prior week it was 59%. The survey posted new cycle highs in bullishness at 68% 14-weeks 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 fell out of the neutral zone into the high Panic mode to lows not seen in since last October at a minus 0.13. Last week it was a plus 0.07. Two-months ago it registered a cycle high of a plus 0.38 that was still in the neutral zone but, close to the euphoria zone. The model moved from panic into neutral in October 2010. During 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 78.1.


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