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Short-term
Outlook:
Short-term Strategy
What: We will remain neutral
for now.
Why: Usually, short-term trading within a
range-bound market is easy (as much as we can ever say
trading is "easy"). Simply sell approaches to the
upper end and buy approaches to the lower end. The
past month hasn't been quite so accommodating, as equities
have shown many "gap and then just sit there" days and
strange, whippy intraday and overnight behavior. That
makes it hard to carry positions with any degree of
confidence of not getting shaken out. Currently, the
S&P is sitting in the middle of its range between 1085 and
1100-1110 after bouncing near the lower edge yesterday.
Our shortest-term guides are mostly mixed now, though we
still have those lingering trouble spots that we've
discussed over the past week. So we still have a
modest bearish bias short-term, but unless the S&P violates
and hold under 1085, we don't want to try to push any shorts
in case we whip around yet again and test the upper boundary
of this range.
Sentiment:
Trend:
Most of our short-term guides are neutral. Still in the
1085 - 1110 range. Support/Resistance:
Other Tendencies:
Both support and resistance
are relatively nearby (1085 and 1100). We continue to have a few
lingering bearish inputs that we discussed over the past week.
Intermediate-term Outlook:
Intermediate-term Strategy
What: We will remain neutral for now.
Why:
In March,
we discussed a large number of reasons to expect an imminent rally
of one to three months' duration, or perhaps even more.
We've had ample opportunity to discuss the historic
momentum since that low, and have seen little reason
since to expect anything other than short-term
corrections. In
late October, we looked at
some "toppy" kinds of studies, and multiple
failures to hold the 1100-1110 breakout area are another
warning sign. This is especially the case after we've
seen a
surge in
speculative activity, which has continued during the
first week of December.
Sentiment:
Trend:
Smart/Dumb Confidence Spread is neutral.
The S&P has a rising 200-day average and a series of
higher highs/higher lows. Support/Resistance:
Other Tendencies:
Resistance is still tough
near 1110, but there are multiple layers of support under the major
equity indexes. Pullbacks after highs
have been positive, but we've seen some "toppy"
kind of behavior.
Equity Indicators - Updates and Extremes
Investor's Intelligence Bearish % The big news in
sentiment last week was the huge move in the percentage of newsletter
writers who expect a market decline, which had shrunk to only 16.5% of
the total. Despite a market that really didn't go much of anywhere
last week, bears dropped yet again, to 16.3%. This ties the
current reading for the 2nd-lowest in 20 years.
Investor's Intelligence Correction %
While newsletter writers are clearly "not bearish", they aren't exactly
jumping up and down bullish, either. The percentage who expect a
market rally are only at 48.8%, which is about average historically.
However, there is a third group, and they are making just as remarkable
an extreme.
Writers who generally expect the market to rise, but perhaps with a
minor correction first, are more plentiful than they've been in 17
years. The only weeks since 1992 that even come close to the
current reading are 08/22/97, 06/29/07 and 05/29/09. The writers
were somewhat prescient in those cases, as the S&P 500 had difficulty
maintaining any additional upside in the subsequent weeks.
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Equity Market Indicators
Notes: Corporate insiders, equity index futures positions (primarily in the Nasdaq 100) and the various sentiment surveys continue to be the more worrisome indicators among the broad groups that we follow. Most of the others are either neutral or slightly bearish (for the market).
Among individual indicators, we continue to watch most closely for scenarios where 0% are bullish and 30% or more are bearish, which has been a very consistent predictor of imminent short-term weakness since March.
More history:
* New extreme
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Bonds, Commodities and Currencies - Updates and Extremes
Public Opinion for Coffee, Cotton and Cocoa Our latest Public Opinion data for commodities shows a high degree of bullishness among three "C"s in the softs complex. Coffee, Cotton and Cocoa all have bull readings above 70%, and all are pushing up near the highest levels that we've seen over the past 18 years.
Following readings of 70% or higher, during the next month Coffee was up 43% of the time, Cotton was up 48% of the time and Cocoa was the worst performer, up 38% of the time.
It might be interesting to see which stocks in the S&P 500 did well (or not) in the month following similar extremes. The table below highlights the top and bottom 5 most consistent performers following those extremes. Many of them simply don't make any fundamental sense (i.e. why would KLAC do poorly when folks are extremely bullish about Coffee?) but a few of them do stick out (e.g. the railroads have done well when all three commodities have high bullish readings).
Forwarding or other distribution of this email is prohibited without the express permission of Sundial Capital Research, Inc. If you do not possess a firm-wide license, then forwarding this message will violate your subscription agreement.
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For December
9, 2009
Neutral As of Dec 4,
1115
SPX
