Sentiment Report - November 11, 2011

Posted 11/11/11 7:00 PM ET by Jason Goepfert



Top Stories In Sentiment


Smart / Dumb Money Confidence     


1  A couple of our more-reliable short-term guides were oversold on Thursday, and moved back to neutral with Friday's rally.  There currently aren't any notable extremes.


2  The S&P 500 has endured 17 large unfilled gaps during the past 3 months.  All four times we've seen this in the past, the market was forming a major long-term bottom.


3  The weekly report on futures traders' positions has been pushed back to Monday due to Veterans Day.


The Smart Money is 46% confident in a rally.

The Dumb Money is 50% confident in a rally.


Smart/Dumb Confidence

 (click chart for larger version)


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Short-term Summary  |  Intermediate-term Summary

Equity Indicators  |  Sectors  |  Commodities

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Short-term Summary




Things to keep in mind

Date Description Priority
  Nothing notable  



Short-term Risk Level:  5     



Bottom Line

Many stocks had hearty moves on Friday, but most of the price changes took place immediately after the open.  Our short-term guides remain neutral or mixed, with no particularly compelling sentiment extremes.



Traders, yet again, got a jump start on the day by pushing prices hard before the open of regular trading hours.  And then they left.


We almost always see reduced volume when the bond market is closed.  For institutional investors, trading stocks without seeing how bonds trade is like trying to drive with one eye closed.


Today was the 17th time in the past 3 months that the S&P 500 SPDR (SPY) gapped by more than +/- 1% at the open and then didn't close that gap during the day.  This means that the S&P didn't reverse enough to kiss the previous day's close.


As we can see from the chart to the right, this level of "unclosed gap" behavior has been seen only 4 other times.  All occurred while the market was forming a major bottom.


From 1993 - 1996, there had never been more than 6 unfilled gaps within 3 months.  Using the S&P 500 futures back to 1982, the only other time that even remotely equaled this was January 1988, with 18 such unfilled gaps during a 3-month span.  Again, that proved to be a major market bottom.


Technicals, Seasonality, Etc.

Speaking of unfilled 1% gaps, Friday was only the 2nd time in the history of SPY that it managed such a feat on the lowest volume in three months.  The other was 7/17/09, which happened to lead to excellent gains going forward.


There were 7 times in happened with the lowest volume in one month.  After those, the next day was positive 5 of the 7 times, but three days later SPY was positive only 1 of the 7 times.


Earnings season will be wrapping up next week, preliminarily with a gain of more than +5% for the S&P.  Since 1950, when the S&P gained 5% or more during earnings, then the following off-season was positive 64% of the time, averaging +2.0%.


When it did not gain that much during earnings, then the following off-season was also positive 64% of the time, averaging +0.9%.  So it doesn't look like a particularly predictive sign.


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Intermediate-term Summary


Intermediate-term Risk Level:  5     



No change in the Summary since November 10th.



Things to keep in mind


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General Equity Market Indicators


The October re-test of the August low pushed the % of indicators at a bullish (for the market) extreme back above 40%, which has led to positive results going forward the vast majority of the time.  We got a positive push in stocks once again, and are now seeing more bearish than bullish indicators for the first time in four months.  We're not really seeing any notable extremes yet, however.


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


Indicators At Extremes



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Sector Sentiment

Go to sector breadth charts


The mini-crash on August 3rd shoved every sector into deep oversold territory, with not even the defensive sectors spared.  We can't recall another time in the past decade where all sectors were that far into oversold territory, and they went into deep oversold territory again in early October.  The impressive rebound off those lows has pushed several sectors into overbought, which is the first time we've seen this since April (which was obviously in a different market context).



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Currency / Commodity Sentiment

See all currency/commodity indicators


Traders remain quite net short most currencies, with small speculators especially betting against the Canadian Dollar.  On the flip side, Cattle and Hogs are notably well-loved, as traders have established extreme net long positions in both, particularly Hogs.  The stock most closely correlated with this data is Smithfield Foods, which has a decent record of peaking along with speculator positions in Hogs.




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