Posted 02/28/12 7:50 PM ET by Jason Goepfert
/ Dumb Money Confidence
1With a slow crawl higher,
we're not seeing many new extremes among our guides, and we just keep trucking
with the same kind of history-defying uptrend.
Until that changes, we probably won't see much of a change in our guides or
anything else we follow.
2The latest Public Opinion
update showed further deterioration in
US Dollar sentiment, which is now the lowest since last August.
Readings between 20% - 25% have coincided with at least short-term bounces, and
we're not quite there yet.
3As an aside, Apple
announced that it will introduce the IPad 3 next week, helping to juice that
stock. After the introduction of the IPad 2, Apple jumped 2% the next day,
and that marked its high for the next six months.
Click here for a
The incremental-gain-almost-every-day market
continues unabated. There has been no real change in sentiment or the
outlook for the past several weeks at least. There still appears to be high risk
(see the Active Studies below), though several of those risks have dropped off
after failing miserably. Given the momentum and bucking off of so many
formerly reliable patterns, we wouldn't bet on an imminent decline as long as the S&P
levitates above 1350ish.
For weeks, there has been no change here...stocks have been driven by impressive momentum,
and recently we've discussed that such streaks usually bode well long-term.
More immediately, though, disturbing extremes in sentiment and a major reversal
in the market's premier stock, Apple, bode ill. Risk is high for a looming
correction, most likely 2-4 weeks and 3%-8% in duration.
With very few of our indicators at a bullish (for
the market) extreme, even none of them at some points, when we see the
percentage of bearish indicators go over 30% of the total, it tends to precede
market pullbacks. That happened on January 20th and again February 3rd,
but so far stocks have reacted much. A couple of times in 2010, we saw the
bearish indicators jump above 40% before a correction set in, so that's a
possibility here, but we would still consider risk to be fairly high.
The rally over the past several weeks has been
concentrated in some of the more speculative sectors, such as Financials,
Technology and Housing, while defensive sectors like consumer staples and
Utilities haven't participated as much. This isn't necessarily a bag
thing, but when those speculative sectors get so overbought, the broader market
generally takes a multi-week breather, or at the least price gains tend to
moderate and flatten out.
Data Brief for more background on the Sentiment Scores
With the correction from extremes in many
currencies over the past couple of weeks, sentiment towards the US Dollar has
become less enthusiastic, which is normal. Traders have moved more into
the Aussie Dollar. We're also seeing some extremes in the energy
contracts, particularly Unleaded Gas and Heating Oil.
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