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Double dip considerations fade

|Includes: SPDR S&P 500 Trust ETF (SPY)

9-7-2010

 

Dr. John L. Faessel   

ON THE MARKET

Commentary and Insights

Dr.Faessel@onthemar.com

 

 

Quote of the day

 

“I believe the politicians spend too little time on their knees. I'm convinced that they would be better politicians if they were to do so.”

~ Mother Teresa ~

        ~~~~~~~

Last week's stock market advance came off a very deep oversold interday McClellan Oscillator read of around minus 300 and it was accompanied by horrid (and positive for the market) investor sentiment readings that were near the March lows of 2009, so the setup was perfect for a bounce-back relief rally. Prominently for the Bulls this kept the trading range intact and no absolute new lows were put in. Important resistance levels were also breached as best seen in the S&P 500 at 1100. 50-day moving averages are also penetrated across the board. Generally speaking volume was low again during the end of summer (and three-day holiday) doldrums.

 

Let's remember that the prevalent "double dip" worries did not blow out the six-day lows at (SPX) 1040.

The big employment news of fewer than expected job losses pushed much of the double-dip concerns to the back burner. Importantly, private payrolls rose.

 

Bigger picture in Bearish investor sentiment remains elevated and confidence going forward is near nonexistent as evidenced by the super low yields in the Treasury market. Over the weekend news broke that President Obama wants another $50 billion for another shot of "job creating" stimulus. So far the $814 billion stimulus passed last year has had little effect. Futures markets have pulled back and the S&P futures are off 7 points.

 

Chinese growth remains a key consideration yet global profits are expected by analysts to grow over the next 12 months by 20%. Stocks are historically cheap by traditional dividend yield analysis versus bonds. Traditionally the stock market as best seen by the S&P 500 (SPX) tracks very closely to the triple B 10-year bond yield is currently at 4.7% yield to maturity.

 

Technically speaking the major indexes are right at and near price resistance and some gaps and a back-and-fill retreat would be healthy. The McClellan is slightly overbought.

 

To what degree a Republican victory is cooked in the market is obviously unknown, but a "new" Congress would bring a dramatic breath of fresh air to the business community and investors. Once again I'm reminded of the 1994 Republican victory that turned the bond market the day after and set the stage for the huge stock market move to what were eventually the "bubble" highs of 1999 / 2000. The global debt bomb probably will prevent this dream scenario from coming true, but you never know.

 

A real worry is that any "lame-duck" caper / fandango by Congress after November's elections could torpedo the usual Santa Claus rally. God forbid!

 

Support in the S&P 500 (SPX) is 1100 then 1090 then 1075. The consolidation lows of support are at 1040. The deepest support lows are the July lows at 1011.

 

Price Resistance will be at (SPX) 1104. The heavy resistance at the top 1128 / 1130 has repelled “price” since the May 2010 market retreat.

 

Key indicators and metrics:

 

·        Friday’s McClellan Oscillator is a slightly overbought 146

·        The Treasury 10-year yield 2.706%

·        3-month $ LIBOR slides deeper to 0.292

·        CBOE Put / Call Exchange Volume Ratio - 0.97

·        (VIX) - 21.31

·        Euro - 1.275 

·        Copper -  3.43 

 

The BARRON’s Confidence Index moved up a couple of ticks to 74.4. The Index registered new highs of the cycle 15-weeks ago at 79. One year ago it was 65.7. The lows of the bear market were 45.2 posted in December 2008. Healthy BARRON’s Confidence Index numbers are in the 80’s.

 

The Confidence Index is the High-grade bond index divided by the Intermediate grade and is a premier measure of how the bond markets many $ trillions are allocated. The discrepancy between the yields is indicative of investor confidence. There had been a solid improvement in the spread ratio since its all-time low of 45.2 in December 2008, indicating that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds. The recent retreat in numbers is definitely a danger alert.

 

CONTRARY INDICATOR & WEEKLY SENTIMENT:

 

BULLISH longer-term investor sentiment readings have moved off their “super” lows of last week. High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.

 

·       The AAII Investor Sentiment Survey BULLISH read registered a still very low of 30.8%. The prior week was an extremely deep low of 20.7. The prior 17-weeks were - 30.1%, 39.8%, 30.4%.40%. 32%, 39.4% 20.9%, 24.7%, 34.5%, 42.5%, 34.5%, 37.1%, 29.8%, 41.3 % and 36%. [The lows registered on March 9th 2009 were an historic low read of 18.9% BULLISH.]

 

·       The Consensus Index Bullish investor sentiment survey was 41% Bullish. The previous week was at 42% The prior 16-weeks were 47%, 51%, 50%, 44%, 34%, (the low of this market retreat) 37%, 39%, 37%, 43%, 49%, 40%, 39% 42%, 44%, 56%, 60% and 76%.

·       The Market Vane (Market Letter Survey) posted a BULLISH read of 43%.The preceding 16-weeks were ― 42%, 46%, 50%, 48%, 50%, 44%, 46%, 39%, 40%, 47%, 49%, 42%, 43%, 42%, 46%, 49% and 53 %.

·        The AAII Investor Sentiment Survey BEARISH number faded to 42.2% from last week’s high of 49.5%. The prior 11-weeks were 42.5%, 30.1%, 38.2%, 33.3%, 45%, 37.8, 57.1%, 42%, 32.4% and 30.7%.

 

 

If you would like a copy the just-released Standard Chartered report on what they think will be a global shortage of copper, iron ore, thermal and coking coal: Dr.Faessel@onthemar.com

 

 

For my list of my UPDATED Best Ideas for 2010 please send an e-mail request to: Dr.Faessel@onthemar.com

 



Disclosure: None mentioned