Markets indexes in sight of new highs while Rome burns

Jul. 25, 2011 10:00 AM ET
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Contributor Since 2010

Dr. John L. Faessel is a seasoned and respected Wall Street professional with industry-wide recognition for expertise in market strategy and analysis. He is widely recognized for his insights in public companies. For over 25-years Dr. Faessel’s ON THE MARKET reports have been widely distributed to a throughout the world to an extensive list of financial institutions, investment banking firms, brokers, foundations, mutual funds, hedge funds and private high net worth investors. 

Monday 7-25-2011


Dr. John L. Faessel


Commentary and Insights


Quote of the day
“We the people are the rightful masters of both Congress & the courts, not to overthrow the Constitution, but overthrow the men who pervert the Constitution.”

~ Abraham Lincoln ~


Markets indexes in sight of new highs while Rome burns


The Greek “can” goes down the road again & the get a Moody’s downgrade!


Super earnings reports flood the Market


Nasdaq 100 (NDX) posts 10-year highs


Early futures indicate worry re the debt default


The S&P 500 futures are currently down 11 points and gold is ticking at new highs.


The stock market backdrop continues to look positive. Earnings from corporate America are coming in a 3.8% above analyst estimates and the NASDAQ 100 just posted 10-year highs on Friday. Standard & Poor’s is looking for $99.48, an all-time high number, in profits for the S&P 500 (SPX). Put a 14 or 15 multiple on that number and up, up and away you go. Corporate cash is at all-time high levels and balance sheets are strong. The Philly Fed manufacturing index points to an improved manufacturing sector. Also key is that China seems to be coming out of the hole as Chinese stocks have been running positive four out of the last five weeks as their "soft landing" once again seems on track.


All that said, Euro land / the PIGS and now recently mentioned Belgium (home of the European Union) are in an intractable debt mess. And now our focus is the $14 trillion debt monstrosity that we have established. Each day the United States spends $4.1 billion more than it takes in. In my mind the recent congressional and White House impasse is a wonderful thing; as it brings to light to Mr. and Mrs. America the incredible boondoggle that our political class has gifted us with. If the lessons of history mean anything; it's gotta get worse before it gets better. And it gets worse and worse and worse. It's Bernie Madoff’s $50 billion Ponzi scheme of robbing Peter to pay Paul times a million.


There seems to be a stated belief by the talking heads in the media that all hell will break loose if we don't increase our debt limit. I don't think so. Key bond spreads are stable with hardly a downtick. I think that the $91 trillion in the bond market would actually like to see the out-of-control spending finally addressed. The tax and spenders are being exposed like never before. This should be an interesting week.


And, I continue to like the stock market.


Short term Price resistance in the in the S&P 500 (SPX) is at 1346 / 1347 - then at 1356. Cycle highs of 1370.58 were established on Monday May 2nd.


Short-term support in the S&P 500 (SPX) established one week ago is at 1295. The 50- moving average support is at (SPX) 1311.The 200-day moving average of 1281.

The (SPX) closed Friday at 1347 up from 1305 one week ago.


Tracking the Bond Markets $ 91 Trillion

The BARRON’s Confidence Index ** upticked to 78.3 from 77.3 the prior week’s posting. Three months ago the Confidence Index posted new cycle highs of 83.7. During this cycle it has never reached the 2008 highs of 85 & 86 postings of “times” normal. One year ago the index was 77.2.


Monday’s key indicators and metrics:



·     McClellan Oscillator  in Neutral @ plus 40   

·     CBOE Put / Call Volume Ratio – 0.84

·     Gold (COMEX) $1601.5

·     Swiss Franc – 1.2228

·     US Dollar Index – 74.41

·     The Treasury 10-year yield 2.9640

·     3-month $ LIBOR at 0.252

·     Copper – 4.4045

·     Silver (COMEX) 40.113

·     Crude oil (NYMEX) $99.87

·     Brent Crude $118.67

·     Euro – 1.4344

·     VIX – 17.52

·     Canadian Dollar – 1.0523

·     Aussie Dollar – 1.0782


* Key WEEKLY BULLISH SENTIMENT (i.e. CONTRARY INDICATOR) data points show a slight increase in bullishness.


Last week’s Consensus overview of Bullish Investor Sentiment increased a few % pointswhile our debt and euro contagion worries continue unresolved. 


(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 rose a tad to 39.9%  from 39.3% the prior week. The cycle lows of 24.4% were put in 7-weeks ago. In January it ticked new cycle highs in Bullishness at 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 rose again 30.6% to from 29.3% the prior week. Three weeks ago it was 24.7% .The cycle highs in bearishness of 47.7% were established 7-weeks ago. January’s BEARISH sentiment cycle lows were at 16.4% and were lows not seen since 2005. The highest Bearishness of the cycle 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 jumped to 56% from 49% the prior week. Six-weeks ago it was only 29% bullish. 


·        The Market Vane (Market Letter Survey) roses again to 59% from 57% prior week. Six-weeks ago it was 50%. The survey posted new cycle highs in bullishness at 68% 19-weeks ago.


·        The Citygroup “Panic / Euphoria” Model registered another uptick to a plus 0.10 from plus 0.030 the prior week. 13- 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 77.2.


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