Monday - 4-2-2012
Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Quote of the Day
"You need as many people in your city coming out of high school and out of college with the state of mind of entrepreneurship. I think that's the single strongest correlate to quality GDP growth and quality job growth."
~ Jim Clifton ~
CEO of Gallup Inc.
Today's market driver; EuroLand contraction worsens...
The Eurozone Manufacturing Index [PMI] is at 47.7 in March vs. 49 in February. That's the 8th consecutive month of readings below 50, which signals contraction.
Importantly for the USA , the Institute for Supply Management's Purchasing Managers Index, [ISM] a key index of USA manufacturing, remains in an expansionary range. Estimates are for a reading s of 52 to 55 through the rest of the year. The March ISM reading is due out this week.
For an excellent read on why the Euroland mess isn't going to get better for as far as the eyes can see, link to the article in the Atlantic; Europe's Real Crisis.
Longtime readers of ON THE MARKET know that I've mentioned the developing Euro Land demographic time bomb for years advising that the spending balloon will end badly... When, and how ugly, is the question.
Stocks soar in face of a "Wall of Worry"
The S&P 500 advanced near record 12% and the Nasdaq 18.7% in the face of huge big picture uncertainty. High gas prices, a China slowdown, near record unemployment, ballooning government debt, Euroland / Italy / Portugal / Spanish defaults plus the winds of war blowing from Iran have kept a lid on investor sentiment while stock have continued their near record ascent. Add a US government that's trampling the Constitution has many (me included) wondering about the future of the country and the world for the first time ever. The mess festers...
The McClellan Oscillator, my favorite overbought / oversold indicator, is in Neutral at minus 82. Bullish investor sentiment* is somewhat mixed with some studies just off new cycle highs has kept us on the long side. Amazingly, since October the McClellan has moved ONLY into the low reaches of the overbought zone (with a high of only 170 - registered in January).
Fundamentals suggest the market is cheap - real cheap...The Standard & Poor's 500 (SPX) P/E in Q4 of 2011was 14.1, down from a recent high of 24.9 in Q4 2008. The (SPX) P/E is still within a range not seen since the early 1990's.
Importantly , the Institute for Supply Management's Purchasing Managers Index, [ISM] a key index of manufacturing, remains in an expansionary range. Estimates are for a reading s of 52 to 55 through the rest of the year. The March ISM reading is due out this week.
EuroLand Bond Yields remain well off highs, but are advancing again
Greek 10-year yields 20.21%
Italy 10-year (gross) bond yield - 5.03% - off from highs of 7.26% on 11-24.
Spanish 10-year (generic) bond yield - 5.25% - off from highs of 6.7% on 11/24.
The S&P 500 (SPX) closed Friday at 1408.47
Short term 'price' resistance is at Fridays high of (SPX) 1411
Stiffer resistance is at the just recently posted cycle highs of 1419
Short term 'price' support in the (SPX) is at 1394
Important trendline support off the December and March's lows is 1385
50-day moving average support is at 1362.
The 200-day moving average support line has begun to bend up and is now at (SPX) 1267 after an 8-month downtrend.
Last Friday's key indicators and metrics:
· McClellan Oscillator is in Neutral at minus 82
· Natural Gas (Globex) 2.126
· The Treasury 10-year yield 2.22%
· VIX - 15.50
· CBOE Put / Call Volume Ratio - 0.97
· 3-month $ LIBOR at 0.458
· Crude oil (NYMEX) $103.02
· Brent Crude $122.39
· Copper - 3.8250
· Silver (COMEX) 32.484
· Gold (COMEX) $1669.3
· Euro - 1.3339
· US Dollar Index - 79.14
· Aussie Dollar - 1.0269
· Japanese Yen 120278
· Swiss Franc - 1.1086
· Canadian Dollar - 1.0010
* Bullish Investor Sentiment remains mixed with some indicators at near cycle highs
(High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.)
· The Market Vane (Market Letter Survey) slid a tick to 68% from last week's cycle highs of 69%. In 2007 it ticked high of the cycle at 75% BULLISH.
· Consensus Index BULLISH investor sentiment fell a tick to 77% from the prior week's cycle highs of 78%. Just 3-months ago it was 40.6%. In September 2011 the Index registered cycle lows of 28%.
· The AAII Investor Survey of BEARISHNESS sliped a few percentile to 25.5% from 27.8% 27.2% the prior week. On August 4th 2011 it posted cycle highs of 49.9% in Bearishness. Late December 2010 it was only 16% Bearish.
· The American Association of Individual Investors [AAII] Investor Sentiment Survey of BULLISHNESS fell a sliver to 42.4% from 42.5 the prior week. For perspective January 2011 it ticked its highs in Bullishness at 63.3%. It posted lows of the cycle at 25.3% in September 2011.
· The Citigroup "Panic / Euphoria" Model held at a plus 0.13. Six-weeks ago it registered cycle highs of a plus 0.31 - a level not seen in 11-months, yet the model remains in mid-range in the Neutral zone.
The BARRON's Confidence Index is at a still low 68%.Two-months ago the index posted cycle lows of 66.9. One year ago it was 80.3.
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 Index is the High-grade bond index divided by intermediate-grade index. A decline in latter vs. former - generally indicates rising confidence, pointing to higher stocks.
For my Best Ideas for 2012 please send an e-mail request to: Dr.Faessel@onthemar.com