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Go to: Top | Short-term Outlook | Int-term Outlook | Equity Updates | Indicator Summary | Commodity Updates
Short-term
Outlook (1-5 Days):
Go to: Top | Short-term Outlook | Int-term Outlook | Equity Updates | Indicator Summary | Commodity Updates
Intermediate-term Outlook (1-3 Months):
Today's Update: We will remain Neutral.
Why: During the market's breakdown in early
July, we saw a number of examples of excessive pessimism,
such as deeply
oversold conditions, and give-up among
Rydex traders and
individual investors. After sentiment recovered
from that during a 10% rally, we saw some encouraging signs,
such as the advance/decline line
making a
new all-time high. But indexes like the S&P 500
remained mired in a pattern of lower highs and lower lows,
so price action was dubious. Since then, we saw some
worrisome signs, some of which the media has grabbed onto,
like
the Hindenburg Omen. Now stocks are
threatening to break down under support. There is
anecdotal evidence of too much pessimism once again
(mainstream press about mutual fund flows into bonds instead
of stocks, firms rolling out "fat tail" funds, and
celebrities warning about pending market crashes and
advising the masses to stay away from stocks). Lately,
some of our indicators have started to reflect that,
including a dearth of money in
leveraged long funds at Rydex and investors clamoring
for
"fear trade" currencies. According to our
indicators, though, we're not yet at a pessimistic extreme,
and given the poor price action we're not eager to add
exposure.
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Sentiment (
Trend (
Support/Resistance (
Other (
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Short-term Outlook
| Int-term Outlook |
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Indicator Summary |
Commodity Updates
Equity Indicators - Updates and Extremes
NOTE: I will be traveling from Thursday
through Tuesday, and no Morning Reports will be issued during that time. Back in
January and again in
April, we took a look at a sell signal given by a popular indicator,
the VIX. This measure of
implied future market volatility had dropped to a low level (defined as
a move below its lower Bollinger Band), then popped back above it.
Since Bollinger Bands are also a measure of volatility, essentially what
we were looking at were times when the volatility of volatility was
rebounding from being "too low". As noted at the
time, that's usually not a good thing for stocks, and it wasn't either
time it happened this year.
Let's take a
look at the stats again, this time when the VIX was coming off of at
least a four-month low prior to popping back above its Band. The
table below shows the performance of the S&P 500 futures the given
number of days later. 1 Day Later 1 Week Later 2 Weeks Later 1 Month Later 3 Months Later True to form,
weakness was most likely. Over the next couple of weeks, the S&P's
median maximum gain was +1.1%, while its median maximum loss was -2.2%.
That's not a huge edge, but it's still a relatively compelling data
point. Just for fun,
the following table shows each instance when we got one of these sell
signals when the S&P was trading below its 200-day average at the time.
I normally only look at the slope of the average, but that seemed to
make little difference in the results, and I get several requests each
time to look at whether price is above or below.
Date 1
Day Later 1
Week Later 2
Weeks Later 1
Month Later 3
Months Later
06/17/94 -0.7% -3.9% -2.9% -1.1% 2.8%
02/16/01 -1.6% -2.4% -4.7% -11.7% -0.8%
11/18/02 -0.2% 3.3% 2.6% -0.9% -6.8%
11/25/02 -2.0% -0.6% -3.0% -4.2% -9.8%
05/16/08 0.3% -3.7% -2.8% -5.3% -8.8%
04/13/09 -1.6% -2.5% 0.3% 6.2% 4.9%
05/07/09 2.0% -1.9% -2.0% 3.5% 9.7%
Median
-0.7%
-2.4%
-2.8%
-1.1%
-0.8% Of the 7
precedents, the worst offender was one week later, with only one
positive occurrence (which gave back those gains and then some), and
almost every other one being a loss of -2% or more. Taken in a
vacuum, this is a fairly bearish development. However, there are
some major differences between now and what we saw in January and April,
the biggest one being sentiment. At the time of
both the January and April VIX sell signals, the
Dumb Money Confidence was at 71%, which from a contrary point of
view is extremely bearish for the market. Now, it is at 38%, which
is modestly bullish. So while it's not a good sign to see the VIX
pop up from a low-volatile state, I don't think it's nearly the dire
signal it was the other two times we saw it this year.
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Equity Market Indicators
Notes: In late August, we got a spike in bullish (for the market) indicators near the 30% level, similar to what we saw in late May and late June. Over the past two years, moves above that 30% level have been met with almost immediate buying pressure in the market, and once again that happened. Unfortunately, we didn't quite reach the kind of extreme we have previously, before the market took off. Now we have about an equal number of bullish and bearish extremes, and neither are near an important threshold.
More history:
* New extreme
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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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September
8, 2010,
7:40am EST
Neutral
Since July 20, 1057
SPX
Bullish For The Market
Bearish For The Market
