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ON THE MARKET - Bullish Sentiment Is At Cycle Lows.* However, The Market Is Not Oversold

Monday - 6-4-2012

Dr. John L. Faessel


Commentary and Insights

Worth repeating

Quote of the Day

"One simply cannot build a growth strategy on accumulating more debt, when the capacity to service the current debt is questioned by the markets."

~ Olli Rehn ~

European Economic and Monetary Affairs Commissioner


Markets Tank!

Bullish sentiment is at Cycle lows.*

However, the Market is Not Oversold

Friday was a truly horrible stock market day as the major indexes again put in lower lows on increased and above average volume. All the major US indexes broke thru their 200-day moving averages. Nasty! The Nasdaq plunged 2.8%, the S&P 500 lost 2.5% and the Dow fell 2.2%.

The McClellan Oscillator (my favorite measure of overboughtness or oversoldness) is in neutral at minus 128.Stochastics are likewise not in the deeply oversold zone either and the "tilt" of the highs and lows channel is decidedly bearish creating a bearish divergence.

A few rays of hope:

The S&P 500 is trading at 12.9 times profits in the last 12 months, compared with 15.9 times in February 2011.

According to the New York Fed, household balance sheets are in better shape, with indebtedness down about $100 billion in the first quarter. The Federal Deposit Insurance Corp says Banks are more profitable with earnings having risen for 11 straight quarters, Even the housing market is reviving, with starts through the first four months of this year 24% higher than the comparable 2011 period.

Major Economists cool on Economy:

Following Fridays ugly jobs report, Michael Feroli, chief U.S. economist at JPMorgan Chase (NYSE:JPM) in New York, lowered his forecast for third-quarter economic growth to 2% from 3%. He sees the economy expanding 2.5% this quarter. Allen Sinai, chief executive officer of Decision Economics in New York, bumped up his odds of a recession next year to 15% from 10%.

China is slowing and Europe teeters and Bearish patterns rule. Will Germany jump in save what is an indefensible state of affairs? German boss Andrea Merkel wants the rest of Europe to clean up their debt messes and it maddens the Germans to bail out those Euro PIIGS countries that have spent and spent and spent themselves into effective bankruptcy. To date, little has been accomplished as far as implementing Euroland "austerity" measures, yet the blather goes on. Each day the fate of the Euro currency is in greater question as it ticks lower. The politicians that created this mess remain in the let's pretend mode. Chaos has never been closer and the markets are in near panic. The above mentioned, "Quote of the Day" is the reality of spending / stimulus run amok.

My bet is that we go lower into the deeper realms of "oversoldness" before we rally.


The S&P 500 (SPX) closed Friday at 1278.04.

Short term 'price' support in the (SPX) is at 1277

The 200-day moving average resistance is at (SPX) 1284

50-day moving average resistance is at 1367.

Short term 'price' resistance is at (SPX) 1283 / 1288 / 1293.

Stiffer resistance is at 1321then the more5recently posted cycle highs of 1335 established on 5/29/2012.


EuroLand Bond Yields have rocketed higher as the Euro debt crisis escalates.

Greek 10-year yields 28.67%

Italy 10-year (gross) bond yield - 5.67% - off from highs of 7.29% on 11-24.

Spanish 10-year (generic) bond yield - 6.34% - off from highs of 6.7% on 11/24.


Friday's key indicators and metrics:

Cycle highs or lows are in red

· McClellan Oscillator is in neutral at minus 128

· Euro - 1.2413

· Copper - 3.3125

· The Treasury 10-year yield 1.70%

· The 30-year Treasury is at 2.742%

· US Dollar Index - 82.97

· VIX - 26.66

· CBOE Put / Call Volume Ratio - 1.37

· 3-month $ LIBOR at 0.467

· Crude oil (NYMEX) $83.23

· Brent Crude $98.43

· Natural Gas (Globex) 2.326

· Silver (COMEX) 28.512

· Gold (COMEX) $1620.5

· Aussie Dollar - 0.9671

· Japanese Yen 12806

· Swiss Franc - 1.0337

· Canadian Dollar - 0.9613

* This week's Bullish Investor Sentiment that didn't take into account Friday's market rip was just off near cycle lows. Certainly, sentiment is now at new cycle lows.

(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 fell to 28% from 30.5% the prior week. The lows of the cycle were ticked 3-weeks ago at 23.6%. It had posted previous lows of the cycle at 25.3% in September 2011. It was 42.4% just ten-weeks ago. For perspective January 2011 it ticked its highs in Bullishness at 63.3

· The Market Vane (Market Letter Survey) rose to54% from 52% the prior week. It ticked Bullish cycle highs of 69% eleven-weeks ago. In 2007 it ticked high of the cycle at 75% BULLISH.

· Consensus Index BULLISH investor sentiment fell another couple of ticks to 53% from 55% the prior week. Cycle highs of 78% were reached eleven-weeks ago. In September 2011 the Index registered cycle lows of 28%.

· The AAII Investor Survey of BEARISHNESS rose to 42% from 38.7% the prior week. Three-weeks ago it was 46%. On August 4th 2011 it posted cycle highs of 49.9% in Bearishness. Late December 2010 it was only 16% Bearish.

· The Citigroup "Panic / Euphoria" Model slipped again to a minus 0.27. Four-months ago it registered cycle highs of a plus 0.31.

The BARRON's Confidence Index posted a 67.7 from 69.2 the previous week. Three-months ago the index posted cycle lows of 66.9. One-year ago it was 77.5.

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.

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