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Short-term
Outlook:
Short-term Strategy
What: We will remain neutral.
Why: This market is doing an exceptional job at
providing head-fakes on both the long and short side lately.
Yesterday the S&P dropped below 1100 support and made a
lower low (barely) after the first hour, usually a very
negative sign, especially considering the gap and the fact
it occurred after the day after a FOMC decision. Yet
this morning we're rebounding right back above support.
We do have a few slight oversold readings among the
shortest-term indicators we follow, and when those occur
during this time of year, the market shows an exceptionally
consistent tendency to rebound (or at the very least, not
fall much). But given the multiple headfakes and
overall mixed readings among the guides we follow, we're
going to stand aside here and wait for a better setup that
seems to have less chance for another whipsaw...especially
given often choppy conditions during option expiration
sessions.
Sentiment:
Trend:
Most of our indicators are neutral. Back into the
trading range: 1085-1110 Support/Resistance:
Other Tendencies:
Resistance is still around
1110-1115, while support is still at 1085. Nothing notable.
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. The S&P has broken to a new
closing high, which usually results in further short-term
gains, but these initial breaks often have mean-reverting
tendencies longer-term, and the market very often runs into
trouble during the "meat" of January, so we're not looking
to trade an upside breakout on an intermediate-term time
frame.
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:
Possibility of a "false" breakout (again) at 1110. Pullbacks after highs
have been positive, but we've seen some "toppy"
kind of behavior and speculative activity.
Equity Indicators - Updates and Extremes
NAAIM Survey Of Active Investment Managers Over the past
week, we know that newsletter writers became more bullish. And so
did individual investors. How about investment managers?
Well, they did too, at least according to
NAAIM.
This unique survey takes a look at the equity exposure of active
investment managers, and typically they're pretty successful in taking
advantage of the market trend. When they shift too much to one
side, though, we most often see the market head the other way, or at
least struggle to continue in the direction of the extreme.
The latest results, as of Wednesday's close, show that the managers have
a median equity exposure of 82% long (on a scale of 200% short to 200%
long). While it got up to 80% in mid-October, technically the
current reading is the highest since mid-December 2007. Managers
were this net long (or longer), seemingly successfully, in the fall of
2006 and spring of 2007, but such high exposure is a little
disconcerting from a contrary perspective given the range-bound market
action.
Wall Street Strategist Allocations Not ones to be
left out of the party, Wall Street market strategists made a huge shift
in recommended equity allocations heading into mid-December, moving to
their highest exposure since early 2008. The latest
weekly results showed a change from 56.9% to 60.5%. That doesn't
seem like a lot, but a one-week change of more than 5% is exceptionally
rare, as the chart below shows. In fact, it has occurred only
three times in the past 12 years: * May 8, 1998 -
market went nowhere for a month, spiked in July, then cratered in the
fall * January 4,
2002 - preceded an immediate and prolonged decline * August 5, 2005
- market went nowhere for three months This doesn't
seem to be a particularly positive development.
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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
Nothing notable for today.
Prepared by Jason Goepfert Founder, Sundial Capital Research, Inc.
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
18, 2009
Neutral As of Dec 17,
1098
SPX
Bearish For The Market