August 6, 2010, 8:55am EST   

 Print Report    Leave a comment     Previous Day's Report     Archive  

 

Go to:  Top  |  Short-term Outlook  |  Int-term Outlook  |  Equity Updates  |  Indicator Summary  |  Commodity Updates

 
Friday's Need-To-Know  

Smart / Dumb Money Confidence

 

* Today's big focus will be on reactions to the Payroll report, which came in below expectations, driving stocks lower and short-term Treasuries to new record low yields.

 

* Historically, when the S&P opens below the prior day's low on a bad miss in the Payroll report, it suffers even more through Monday.  The good news, though, is that those kinds of initial reactions aren't very telling for the longer-term...and we have a FOMC meeting coming up on Tuesday.

 

 

The Dumb Money is 50% confident in a rally.

The Smart Money is 50% confident in a rally.

 

Smart/Dumb Confidence

View longer history

 

 

Short-term Outlook (1-5 Days):  Neutral  Since July 20, 1057 SPX

 

 

 

Recent Studies:

 

 

Today's Update:  We will remain Neutral for now.

 

Why:  The focus today will be on reactions to this morning's Payroll report, which came in significantly weaker than expected, driving short-term Treasury yields to new record lows and stocks below yesterday's lows (or very close to it).  When we've seen this kind of reaction in the past, coming off similar conditions, it has usually resulted in at least another day or two of selling pressure (see below), and if we do gap down about where we're indicated to now (around 1114 on the S&P, just below yesterday's low), and we see a lower intraday low after the first hour of trading, then my guess is we'll get that additional weakness and at least challenge the 1100 area yet again in the day(s) ahead.  The good thing for the bulls is that severe reactions (on a closing basis) to Payrolls reports tend to be relatively short-lived affairs as the market focuses on the next big thing, and next Tuesday we do have a FOMC meeting, which often spurs at least a little optimism.  So based on the currently indicated gap, and assuming a lower intraday low after the first hour (a big assumption, granted), I'll be watching for a possible closing of the gap from Monday into early next week.

 

Current S&P futures:  -9 points at 1114

Sentiment:

Trend: 

Neutral.

Most short-term trends are higher as long as S&P > 1100

Sup / Res:

Other:

Res: 1120; Sup: 1050

Nothing notable.

 

Go to:  Top  |  Short-term Outlook  |  Int-term Outlook  |  Equity Updates  |  Indicator Summary  |  Commodity Updates

 

 

Intermediate-term Outlook (1-3 Months):  Neutral  Since June 22, 1103 SPX

 

 

Today's Update:  We will remain Neutral for now.

 

Why:  In late May, we looked at quite a few  bullish intermediate-term studies - we got a major surge in pessimism, then several positive breadth thrusts and positive price performance, all in the context of an ongoing bull market.  But after just a brief respite, June 4th's Payroll Report kneecapped the rally attempt and took us to a new closing low.  In the process, we saw very oversold conditions and some give-up among Rydex traders and individual investors.  In early July, we saw even more evidence of excessive pessimism.  The big missing piece, though, was the price action - the S&P was making a clear series of lower highs and lower lows, which muddled the risk/reward of stepping in and buying into those pessimistic conditions.  The market has obviously recovered well from there, and with the advance/decline line making a new all-time high, things are looking brighter for stocks.  The S&P still is flirting with the 1125 area, but much more upside will break the pattern of lower highs we've been mired in since the spring.

 

 

Recent Studies:

No Fidelity funds better than cash (7/06): Bullish

Rydex traders giving up (7/07): Bullish

AAII survey shows low bullishness (7/08): Bullish

Sentiment:

Trend: 

Mostly neutral readings.

Mixed long-term trend signals.

Sup / Res:

Other:

R: 1140; S: 1040

Nothing notable.

 

Go to:  Top  |  Short-term Outlook  |  Int-term Outlook  |  Equity Updates  |  Indicator Summary  |  Commodity Updates

 

 

Equity Indicators - Updates and Extremes

 

Nonfarm Payroll Report

 

The big news today is obviously the Payroll report, and even more than that, the market's reaction to it.  The usual tendency after a big knee-jerk move after the release is a "fade" if the market closes strongly one way or another.  So if we get a big rally, the market tends to drop during the following session(s) and vice-versa, especially if prices are near a multi-day extreme at the time.

 

While the situation is very fluid, so far the S&P appears as though it will open below yesterday's low on a worse-than-expected Payroll number.  The table below shows every time since 1998 that Payrolls came in more than -50K below estimates and the S&P opened below the prior day's low:

 

Date

Miss

Open To Close

1 Day

Later

1 Week

Later

05/04/01 -238 3.0% 2.1% 1.2%
07/06/01 -64 -1.9% -1.3% 0.8%
09/07/01 -68 -1.2% 0.0% -10.3%
12/07/01 -131 -0.3% -2.2% -3.2%
12/06/02 -75 2.1% -0.7% -0.9%
03/07/03 -318 2.1% -0.4% 3.1%
03/05/04 -109 0.8% -0.4% -2.5%
08/06/04 -208 -0.7% -0.6% -0.4%
10/08/04 -51 -0.6% -0.2% -1.7%
02/03/06 -57 -0.2% 0.0% 0.1%
09/07/07 -104 -0.3% -0.5% 1.7%
01/04/08 -52 -1.4% -1.5% -2.2%
03/07/08 -83 0.1% -1.3% 0.0%
12/05/08 -198 5.1% 8.8% 6.4%
07/02/09 -102 -1.5% -1.5% -3.5%
10/02/09 -88 0.5% 2.0% 5.1%
06/04/10 -105 -1.7% -2.9% 1.0%
       
Median -0.3% -0.5% -0.1%
% Positive 41% 29% 47%

 

We can see that it was tough for buyers to step in on such a shock on both a fundamental and technical basis.  In fact, through Monday's close, there were really only two times the S&P managed to rally by any meaningful amount.

 

When we add one more condition, that the S&P was trading near a one-month high the day before the Payroll release, then only two days popped up - December 7, 2001 and March 5, 2004.  While it's very hard to rely much on two precedents, it's telling to see how the market reacted when we were coming off a high, and suffered this kind of fundamental/technical break.  Both times, the S&P went into at least a 5-day decline.

 

 

Go to:  Top  |  Short-term Outlook  |  Int-term Outlook  |  Equity Updates  |  Indicator Summary  |  Commodity Updates

 

 

Equity Market Indicators

 

Notes:

In mid- to late-May, we saw as many as 40% of our indicators at a bullish (for the market) and as little as 0% at a bearish one.  That was the widest spread since March 2009, though it has gotten as high as 50% - 70% at some of the true panic lows over the years.  On June 29th, we got another spike in bullish indicators above the 30% level...but again it's below what we've seen at many of the prior major lows.

 

More history:   Short-term Score     Long-term Score    Indicators At Extremes

 

 

* New extreme

See all indicators

 

Go to:  Top  |  Short-term Outlook  |  Int-term Outlook  |  Equity Updates  |  Indicator Summary  |  Commodity Updates

 

 

Bonds, Commodities and Currencies - Updates and Extremes

 

Nothing notable for today.

 

Jason Goepfert

Founder, Sundial Capital Research, Inc.

 

Go to:  Top  |  Short-term Outlook  |  Int-term Outlook  |  Equity Updates  |  Indicator Summary  |  Commodity Updates

 

 

 

 

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.

 

VISIT THE SUBSCRIBER HOME PAGE

 

Privacy Policy      |      Disclaimer

 

2001-2010 Sundial Capital Research, Inc.  All rights reserved.

sentimenTrader.com is a trademark of Sundial Capital Research, Inc.

Sundial Capital Research, Inc.  12527 Central Avenue NE, Suite 165  Blaine, MN  55434