August 17, 2010, 7:40am EST   

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Tuesday's Need-To-Know  

Smart / Dumb Money Confidence

 

* Yesterday we went over a few reasons to expect a bounce after any early-week weakness, and another down day (barely) on Monday again suggests a generally rising market for the next few days.

 

*  In what must be a reflection of the dog days of August, our intermediate-term indicators are mostly neutral and there isn't much at all that's new to discuss.

 

 

The Dumb Money is 46% 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:

Arms Index spikes above 6.0 (8/12): Bullish

 

Today's Update:  We will remain Neutral.

 

Why:  Yesterday we touched on several reasons why a dip to start the week should result in higher prices heading into mid- to late-week.  The early gap down didn't last long, as buying pressure came in immediately, then we just kind of petered out the rest of the day.  By the end of it, the S&P 500 SPDR (SPY) did, technically, close lower on the day for the fifth consecutive session.  This is only the 3rd 5-day losing streak since March 2009 (the others were 6/24/10 and 7/2/10).  In SPY's history, when it suffered 5 straight down days into a Monday, then through Thursday it was up 7 out of 8 times, with a +1.7% average return (the loser was -0.3%).  So, again, some reasons to expect the recent swoon to abate here as we head toward option expiration.

 

Current S&P futures:  +8 points at 1085

Sentiment:

Trend: 

Mostly neutral readings.

Back to a trading range.

Sup / Res:

Other:

Res: 1120; Sup: 1065

Nothing notable.

 

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

 

 

Today's Update:  We will remain Neutral.

 

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 were looking brighter for stocks.  But August 11th's knock-down gave us the potential for a failed break of important resistance, and we're back to being stuck in a longer-term trading range.

 

 

Recent Studies:

Hindenburg Omen triggers (8/13): Bearish

A/D line makes a new high (8/03): Bullish

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.

 

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Equity Indicators - Updates and Extremes

 

In what must be a reflection of the dog days of August, we have no updates on any of our indicators or studies.

 

 

 

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Equity Market Indicators

 

Notes:

On June 29th, we got another spike in bullish (for the market) indicators above the 30% level, similar to what we saw in late May.  Once again, it wasn't quite a spike in extremes like we've seen at other major lows, but it was apparently enough for the buyers to step in, as we've rallied well since then.  While the percentage of our indicators at a bullish extreme have understandably drifted lower in response, oddly so has the number of bearish ones.  We have seen few of our indicators reflect too much optimism in the rally thus far.

 

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

 

 

* New extreme

See all indicators

 

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Bonds, Commodities and Currencies - Updates and Extremes

 

Nothing notable for today.

 

Jason Goepfert

Founder, Sundial Capital Research, Inc.

 

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