Sentiment Report - December 23, 2011

Posted 12/23/11 7:00 PM ET by Jason Goepfert



Top Stories In Sentiment


Smart / Dumb Money Confidence     


1  We're still overbought short-term, but many stocks managed to break out of resistance zones.  The next few days will be a battle between those conflicting signals, compounded by very low volume.


2  The 3rd follow-through day since Tuesday's big kick-off is (again) a positive sign.  When this has happened before, the S&P never reversed down enough to set a new low within 3 months (that would be below 1204 in our current case).


3  Breadth has been very good since Tuesday.  This kind of momentum in breadth has led to at least one more positive close during the next week 35 out of 36 times in the past 50 years.


For those celebrating, have a very Merry Christmas...and for everyone else, at least enjoy the day off and have a safe and relaxing holiday season!



The Smart Money is 50% confident in a rally.

The Dumb Money is 50% 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  



Short-term Risk Level:  6     



Bottom Line

The S&P finally broke above widely-watched resistance.  Plus, we have mostly positive seasonality for the next week and a half, and price and breadth behavior that suggests higher prices.  A few of our shorter-term guides are overbought, which normally merits at least a pause in the rate of advance.


(Yet Another) Follow-Through Day

Regarding the "kickoff plus follow through" studies we've been looking at this past week, today marked yet another upside follow-through day.


There were only 7 other occurrences since 1928 that managed three consecutive follow-through days.  None of them fell back enough to set a new low within the next month.  Or two months.  Or three months.


Every one of them tacked on at least +6% during the next three months, and they averaged a maximum gain of +10.7%.  Again, very positive.


Breadth Momentum Is Another Good Sign

Breadth has been similarly impressive - it isn't just a few stocks dragging the market higher.  At least 67% of all volume has flowed into stocks that were positive on the day for each of the past four days.



While that may not seem very impressive, it has happened only 7 other times in the past decade, and 36 times in the past 50 years.


While market performance going forward was somewhat mixed, this kind of momentum didn't go away easily.  The S&P 500 closed higher at some point during the next week 35 out of the 36 times.


Lagging NDX Hasn't Been A Big Deal

Partially because of Oracle's impact on the Nasdaq 100 earlier in the week, the S&P finished the week with a gain of +3.7% but the NDX managed a gain of only +2.2%.  This is highly unusual.


Since 1985, there were only 4 other weeks when the S&P gained at least +3.5% but the NDX gained less than +2.5%.  Two of the instances were positive over the next 1 and 2 weeks, and two of them were negative.  There was no discernable pattern on any time frame (but it was a common question).  The weeks were 1/15/98, 6/13/97, 3/17/00 and 5/8/09.


Even reducing the divergence to get more data points, the future results were very inconsistent.  We've discussed in the past how big divergences between the S&P and NDX have been predictive, but that's really only been when one index or the other is at a new high or new low while the other is far away.  That's not the case currently.


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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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