Morning Report for
Friday, August 5, 2011 |
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Posted 08/05/11 2:00 AM ET by Jason Goepfert |
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Top | Short-term | Intermediate-term | Charts & Studies | Equity Indicators | Sectors | Commodities | Comments
Top | Short-term | Intermediate-term | Charts & Studies | Equity Indicators | Sectors | Commodities | Comments
Intermediate-term
Outlook (1-3 Months)
Risk
Level: 0
Summary: On
August 2nd, we highlighted some of the studies that had popped up recently,
almost all of which have been pointing to higher prices on an intermediate-term
time frame.
There were some that went contrary to that, such as the market's
typical reaction following Apple's earnings report. But those were few
and far between.
On August 3rd and 4th, stocks slid lower and violated several important
technical thresholds. That raised the risk that we could be morphing into
a more dangerous market environment, similar to what we saw in January 2008.
The selling pressure was so intense on August 4th, that it triggered a
number of extremes that we have rarely seen, and most of them also point to
higher prices on an intermediate-term (one to three month) time frame.
So we have a more dangerous technical environment, but also a very large number
of indicators and studies suggesting just the opposite. That's the main
problem when trying to marry the two disciplines - technical analysis looks
worse as stocks decline, while sentiment and other such measures look better.
The trick is determining when to value one more than the other.
Our "Risk Level" is at 0, which does *not* mean there is 0% risk in the market,
only that the combination of a still-rising 200-day average on the S&P and large
spread between our Smart and Dumb Money Confidence has led to the most positive
future market performance out of any other combination.
We respect the ominous technical condition of the market, which means rushing in
to buying into falling prices may not be the most wise choice. If we do
bottom somewhere around here, then there is typically a re-test during the next
one or two weeks that creates a better buying opportunity for longer-term
traders and investors, and that's the kind of opportunity to take advantage of
the breadth and sentiment extremes that we'll be looking for.
Active Studies:
07/27:
Optimism
in "fear trade" currencies
Positive
07/12:
Arms Index closes > 5
Positive
07/07:
S&P goes outside its Bollinger Band
Positive
06/22:
A 90% up volume day off a low
Positive
06/20:
Cluster of 90% down volume days
Positive
06/16:
VIX crosses 20% first time in 50 days
Positive
06/09:
AAII bulls low while stocks high
Positive
06/01:
Consumer confidence low, stocks high
Positive
05/19:
Newsletter bulls drop, market rises
Positive
05/11:
A new all-time high in breadth
Positive
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Short-term |
Intermediate-term
| Charts & Studies
| Equity Indicators
| Sectors | Commodities
| Comments
Studies:
Numerous There were a large
number of notable developments on Thursday. Instead of picking one or two
charts, below we briefly go over everything that we got a question about or that
popped up on our radar. VIX Fear Gauge The
VIX "fear gauge" shot up 35% to a one-year high. That has happened
only two other times, both of which led to a gain in the S&P 500 of at least +8%
at some point during the next three months. 10/19/87: +10.9%
return, -3.7% max loss, +16.4% max gain 10/13/89: +1.0%
return, -2.0% max loss, +8.1% max gain If the VIX gain was +25%
or more, then the S&P rallied during the next three months 7 out of 9 times.
The two failures were doozies - right before the crashes in '87 and '08. Up Issues Ratio Thursday's single-day
Up Issues Ratio was less than 5%, which occurred after the 10-day ratio was
already oversold by being less than 40%. Other than '46, all occurrences
marked very good risk/reward scenarios on an intermediate-term time frame for
the S&P. Next three months: 5/21/40: -1.6% max
loss, +13.0% max gain 9/3/46: -9.1% max
loss, +3.0% max gain 4/14/47: -3.0% max
loss, +10.3% max gain 10/21/57: -0.4%
max loss, +6.6% max gain 10/19/87: -3.7%
max loss, +16.4% max gain S&P One-Day Drop The S&P dropped 4% in
one day when it had been within 2% of a 52-week high sometime during the past
month. Next three months (since
1950): 6/26/50: +7.2%
return, -7.9% max loss, +7.3% max gain 9/26/55: +6.1%
return, -4.3% max loss, +8.9% max gain 9/11/86: +6.7%
return, -3.0% max loss, +8.4% max gain 10/13/89: +1.0%
return, -2.0% max loss, +8.1% max gain 10/27/97: +11.5%
return, -2.5% max loss, +12.5% max gain 4/14/00: +11.4%
return, -0.7% max loss, +11.9% max gain All six occurrences
showed a gain for the index, with a very positive risk/reward ratio. Stock / Bond Ratio Our
Stock / Bond Ratio moved to -4 standard deviations. This is nearly
unprecedented in the 50 years of history that we have. Here are the only
other occurrences, and how the S&P performed during the next month: 10/19/87: +8.1%
return, -3.7% max loss, +15.3% max gain 8/31/98: +6.2%
return, -1.8% max loss, +8.2% max gain 10/12/00: +2.7%
return, -1.8% max loss, +8.2% max gain Down / Up Volume
Ratio Down volume on the NYSE
absolutely swamped up volume, by a factor of more than 90-to-1. The
instances below are the only other ones where the ratio was 90-to-1 or greater. Next three months (since
1950): 6/29/50: +11.4%
return, -4.4% max loss, +11.5% max gain 12/4/50: +15.1%
return, 0.0% max loss, +16.8% max gain 6/9/53: -0.1%
return, -1.2% max loss, +5.3% max gain 9/26/55: +6.1%
return, -4.3% max loss, +8.9% max gain 10/19/87: +10.9%
return, -3.7% max loss, +16.4% max gain 10/26/87: +9.6%
return, -2.8% max loss, +15.0% max gain 10/27/97: +11.5%
return, -2.5% max loss, +12.5% max gain 2/27/07: +8.5%
return, -2.5% max loss, +9.5% max gain 6/4/10: +2.4%
return, -5.1% max loss, +6.2% max gain Only one loser out of
the 9 occurrences, and that was -0.1%. The risk/reward was, once again,
very skewed to the positive side.
Top |
Short-term |
Intermediate-term
| Charts & Studies
| Equity Indicators
| Sectors | Commodities
| Comments
General Equity Market Indicators
Top | Short-term | Intermediate-term | Charts & Studies | Equity Indicators | Sectors | Commodities | Comments
Top | Short-term | Intermediate-term | Charts & Studies | Equity Indicators | Sectors | Commodities | Comments
Currency / Commodity Sentiment
Top | Short-term | Intermediate-term | Charts & Studies | Equity Indicators | Sectors | Commodities | Comments
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A
once-every-few-years kind of a move like Thursday tends to trigger a large
number of extremes, and we certainly got that. When we have this kind of
setup, the future is usually binary: an all-out market crash, or a hard
2-3 day rally.
