Sentiment Report - December 9, 2011

Posted 12/09/11 7:35 PM ET by Jason Goepfert

 

 

Top Stories In Sentiment

 

Smart / Dumb Money Confidence     

 

1  The whipsaws that have become so common were mostly relegated to the pre-market.  Friday's gains moved a few of our indicators back to overbought conditions already, but most of them are just barely.

 

2  The S&P 500 is close to turning positive for the year (again).  When that happens in December, it doesn't necessarily spur traders to buy.

 

3  If the S&P 500 can close out the quarter with a gain greater than 10%, then it suggests even more gains during the first quarter of 2012.

 

4  The biggest changes in the weekly Commitments of Traders report saw speculators increase their long positions in the Australian Dollar (from nearly a 3-year low), and decrease their long positions in Corn.  The most significant extremes remain the historic level of shorts in the Euro and Cocoa.

 

The Smart Money is 50% confident in a rally.

The Dumb Money is 54% confident in a rally.

 

Smart/Dumb Confidence

 (click chart for larger version)

 

Quick Links

Short-term Summary  |  Intermediate-term Summary

Equity Indicators  |  Stocks and Sectors

Commodities  |  Comments  |  Archive


Short-term Summary

 

 

 

Things to keep in mind

Date Description Priority
  Nothing notable  
 

Archive

 

Short-term Risk Level:  5     

 

 

Bottom Line

After yet another volatile pre-market session, buyers managed to enjoy a fairly steady intraday uptrend.  Perhaps the December Arms Index extreme will mark yet another monthly low - there isn't much among our indicators suggesting otherwise, and we'd focus on the long side as long as we hold above Thursday's low.

 

Chasing A Positive Year?  Not So Much

If the S&P gets above 1257.64 again, it will turn positive for the year.  It makes sense to think that if that happens, investors will become a little more emboldened to push into year-end.

 

Since 1928, there were 5 other years when the S&P 500 turned positive for the year sometime in December, after having traded most of the past month (at least) in negative-for-the-year territory.  Here are the returns into year-end:

 

12/11/48:  -0.9%;   12/29/70:  +0.1%

12/01/78:  -0.2%;   12/18/84:  -0.5%

12/14/87:  +2.0%

 

That's pretty lackluster.  There were 17 times when at least the day before was negative for the year.  In those case, the next day was positive 41% of the time, and the next week 53% of the time.

 

Into year-end, the index sported a positive return 41% of the time, averaging +0.1%.  Again, pretty lackluster.  There doesn't seem to be much evidence that turning positive for the year will necessarily spur further buying pressure.

 

Big Q4 Gain = Q1 Gain, Too

If the S&P doesn't quite make 1257.64, but at least closes the month above 1245, then it will have enjoyed a 10% gain for the quarter.

 

Historically, that's been a good sign for the next few months.  The table to the right shows every other time since 1928 that the S&P managed to score a 10% or greater gain during the 4th quarter.

 

The table shows the S&P's return during the 1st quarter of the next year, along with the drawdown (maximum loss at the worst point during the next three months) as well as the maximum gain.

 

Out of 13 precedents, there were 12 winners.  The sole loss was about as tiny as you can get (-0.06%).  The next 2, 3 and 4 quarters were all positive, but only a bit better than random.

 

There was never a -10% or worse drawdown during the next 3 months.   There were only 2 drawdowns greater than -5%, compared to 9 rallies of greater than +5%.  That looks pretty good if we can maintain this momentum into the end of the year.

 

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Intermediate-term Summary

 

Intermediate-term Risk Level:  5     

 

 

No change in outlook from December 5th.

 

 

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 after that.  Currently, the % of Bullish and Bearish indicators are whipsawing back and forth, mirroring the volatility in stocks.

 

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

 

Indicators At Extremes

 

 

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Stock And Sector Sentiment

Go to sector breadth charts

 

Almost all sectors dipped into overbought territory in late October.  The subsequent correction gave us a mixed back, with a smattering of oversold sectors by mid-November.  Since then, we've seen a mixed bag, with mostly neutral readings and a few overbought ones.  There is no real theme among the sectors.

 

 

See this Data Brief for more background on the Sentiment Scores

 

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Currency / Commodity Sentiment

See all currency/commodity indicators

 

As the commodity continues its unrelenting slide, speculators and the public in general are piling on the short side in Cocoa, which is nearing an all-time extreme in pessimistic sentiment.  Same goes for the Euro, where speculators are flirting with an all-time high in short positions.

 

 

 

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Member Comments

 

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