sentimenTrader.com

All rights reserved.

Tuesday, August 27, 2002  10:56 PM EST

Tonight's note will be short, as I've been out of the office most of the past two days (I should be in most of tomorrow).

Beginning on Wednesday the 24th, I've been suggesting that the best risk/reward trade in the short-term would lie with selling into any additional strength and shorting any failures of that strength.  From a sentiment perspective, the best shorting situation is now past (again, from a sentiment perspective only), and we are now faced with a more ambiguous condition.

The STEM.MR model has now switched to a POSITIVE bias with a reading of 88%, with the only component holding it back being the rather stubborn VIX.

We're beginning to see a little more retail emphasis on puts, which is a good sign.  The 3-day moving average of the one-year p/c rank has moved from 17% on August 19th up to 75% as of today's close.  That's not high enough to be considered bullish, but it's a change from the recent past.

After two straight days of very low S&P 500 put/call bid/ask bias ratios (Friday and Monday), we're now seeing a much more neutral reading at 2.08.  Remember, high numbers are bullish (puts being sold and/or calls being bought) and low numbers are bearish (puts being bought and/or calls being sold).  If we look at the September expiration alone, the bias ratio stands at 0.98.  There didn't appear to be any aggressive action one way or the other, so there's not much to be read into those numbers tonight.

As I've mentioned would happen several times, the 10-day advance/decline oscillator has moved back up to extremely overbought status, even with the down days we've had.  We're now entering a streak of 4 straight days where we will be dropping very large positive numbers, which will make this indicator cycle back down to neutral in a hurry, certainly within a week if we continue to meander lower (unless they're replaced by equally high numbers of course).  If we can chop around without breaking too many support levels on the downside while this indicator cycles back down to oversold, that could set us up nicely for another leg up.  Meanwhile, the intraday cumulative TICK indicators have cycled back from extreme overbought territory to neutral or even oversold in the case of the Nasdaq.  We must be careful with oversold readings at this point, since it appears as though we have set a lower high and lower low on the Nasdaq, which would render oversold readings much less effective than overbought readings.  Unless the Nasdaq cumulative TICK can score something close to an historic oversold reading, I'm not putting much weight behind it (especially since the dailies are still much closer to overbought than oversold).

With the relatively light volume (and begging to become lighter as the week wears on) and plethora of economic indicators, the rest of this week promises to be choppy and dangerous for all of those without a very short time frame.  There are a few signs that this recent short-term dip may get some upside relief, but I'm not seeing anything on the sentiment front to get me aggressive on the long side, on any time frame.

Monday, August 26, 2002  12:52 PM EST

No commentary this evening.

- Jason Goepfert