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ON THE MARKET - Stock Market s OVERBOUGHT - Wednesday 7-6-2011

Wednesday 7-6-2011


Dr. John L. Faessel


Commentary and Insights


     Quote of the day
"I wish it were possible to obtain a single amendment to our constitution - taking from the federal government the power of borrowing."

~ Thomas Jefferson ~



Stock Market s OVERBOUGHT 


Bullish Market upticks again off the intense fear lows


Dow Transports tick all time highs on Friday


So, the stock market peeled back after the "sell in May and go away" retreat that was actually pretty orderly with only about 7% hit. In the midst of the pull back bullish sentiment evaporated and "oversoldness” reached deep "minus" levels in the 200s. Importantly, the TICK reached superlow's at near minus 1500. I had mentioned that the market looked "well bid" to me and let's remember that while this was going on USA GDP will be coming in at new all-time highs, as will profits in the S&P 500 (SPX). From my perspective the market was ripe for a big run higher.


Now, right after the Dow Transports ticked new all-time highs on Friday the market is as overbought as it has been since July 2010 and sentiment as "gotten well" somewhat. It should be noted that an important "Breadth Thrust Signal" has just been posted. The meaning of this is that there's been a sudden and huge number of advancing stocks versus declining stocks. What this means is that the "advance" will continue for a while. While not a historically 100% perfect indicator it should at least get our attention. Friday's high OVERBOUGHT posting of a plus 274 in the McClellan should put us on our heels and some kind of the minor pullback should be in order.


So I continue to like the stock market, but the economy, unemployment, US debt, housing and our government stinks. So what's new?


Short term price resistance in the in the S&P 500 (SPX) is just above 1341. The 50- moving average resistance in the S&P 500 (SPX) is at 1317.


Short-term support in the S&P 500 (SPX) is 1334.5.  Then at1320. And at 1270. The 200-day moving average support is 1269. The (SPX) closed Tuesday at 1337.


Cycle highs or lows indicated in Red


Tracking the Bond Markets $ 91 Trillion

The BARRON’s Confidence Index ** upticked to 78.8 from the 10-month lows of 77.1% the prior 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 postings of times “normal.”


Tuesday’s key indicators and metrics:


·                 McClellan Oscillator OVERBOUGHT @ plus 227

·                 Fridays McClellan was OVERBOUGHT @ plus 274  

·                 Copper – 4.339

·                 Gold (COMEX) $1500.5

·                 Silver (COMEX) 35.402

·                 Crude oil (NYMEX) $96.89

·                 Brent Crude $112.40

·                 The Treasury 10-year yield 2.871

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

·                 CBOE Put / Call Volume Ratio – 1.12

·                 Euro – 1.4381

·                 VIX – 16.06

·                 US Dollar Index – 74.99

·                 Canadian Dollar – 1.0370

·                 Aussie Dollar – 1.0590

·                 Swiss Franc – 1.1908


* 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 again off the near panic stage of  3-weeks ago (the lows of the market). 


Recall that two week ago the market flashed 13 straight days of Put / Call Volume Ratios above 1.00 demonstrating the extent of the intense fear in the market, highlighted by a 1.36 posting. 


(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 38.3% from 37.5% the prior week.  The cycle lows of  24.4% were put in one month ago. 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 again to 30.2% from 35.7% the prior week. The cycle highs bearishness of 47.7% was established one month ago. 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 a couple of percentile to 39% from 44% the prior week. 3weeks ago it was 29%. 


·        The Market Vane (Market Letter Survey) was up a few ticks to 54%. Last week’s was also 54%. 3 weeks ago it was 51%.a month ago it was 50%. The survey posted new cycle highs in bullishness at 68% 16-weeks ago.

·       The Citygroup “Panic / Euphoria” Model registered an uptick to minus 0.24 from the prior week’s “deepest” posting since last October at a minus 0.23. We remain in the high end of the PANIC spectrum. 10 weeks ago it registered a cycle high of a plus, but still in the neutral zone of 0.38 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 77.5.


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