Posted 01/03/12 8:10 PM ET by Jason Goepfert
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1 Buyers
followed through on the seasonal pattern, which typically means another up day,
then mixed performance.
2 The large gap
up to open the day and subsequent intraday fade has negative connotations over
the next 3-5 days.
3 A big start
to the new year hasn't meant much in the past, with modest returns going
forward. If anything, those returns were a bit weaker than average
according to this
Data Brief.
4 A reprieve
from the selling in
Cotton triggered the largest positive change in Public Opinion this week,
followed by
Heating Oil. The
US Dollar saw the largest pullback in sentiment, though it remains
historically high.
The positive seasonal pattern lasts for another
day, then peters out. With a moderately negative price pattern and surge
in call trading on Tuesday, a sustained surge looks unlikely. Technically,
the trend is positive as long as the S&P remains above 1250ish, so we'd be less
inclined to place outright bearish bets unless that level is breached or we head
towards 1300 with a spate of "excessive optimism" readings.
Bottom Line
There isn't an overwhelming positive bias among
our indicators, but a residual of positive studies from November and good
seasonality (for just a bit longer) make it difficult to bet heavily against stocks.
The studies we looked at
last week regarding a big down day between Christmas and New Years suggested
an upside edge, and that's nearly played out. It has one more day
remaining in its effective time frame.
The price pattern on Tuesday was somewhat negative. When
the S&P gapped up more than +1% at the open and set at least a one-month high
during the day, then it closed lower than the open but still in positive
territory, the next day it gapped down 11 out of 13 times.
It closed lower the next day only
4 of those times, so it did tend to rebound, but three days later it was negative 8 of
the 13 times,
which was the worst-performing time frame.
Enthusiasm In The Options Market
While we sometimes see goofy readings from the
options market around monthly expiration dates, it's less easy to dismiss
outliers at other times. Like now.
The
Total Put/Call Ratio from the Chicago Board Options Exchange showed a large
push in call volume relative to put volume.
That could be related in some way to traders
manipulating their tax situation, but still the ratio moved more than 30% away
from its six-month average, which is the solid red band we use on the chart on
the site.
We saw something similar to this last January,
though it was later in the month, on the 14th. There was not any
noticeable seasonal pattern to these extremes.
The graph below plots the S&P 500's performance
since 1993 over the next 50 days after other times the put/call ratio moved more
than 30% beyond its average.
The short-term was weak, with the worst
performance being 8 days later, when the S&P was positive only 36% of the time.
Beyond that, it moved closer to random and actually became somewhat positive
after 30 days.
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.
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
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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