DailyOverview

 

 

  07/22/08 9:23pm

  Updates final for 07/22

  07/22/08 6:35pm

  Updates posted for 07/22

  07/21/08 10:10pm

  Updates final for 07/21

  07/21/08 6:12pm

  Updates posted for 07/21

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Smart/Dumb Confidence
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Traders - Next 1 to 5 Days

 

As of:

SPX 1251

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Not-Great Breadth Is About The Only Worry

07/23/08 9:20 AM EST

 

Good Wednesday morning...We begin the day with another bump up in the pre-market futures.  The news and earnings flow has been mostly positive, Oil is backing off and continuing the topping patterns we discussed last week, and foreign markets were very strong with 1% and 2% gains almost across the board.

 

Over the past week, we've gone over several studies that suggested higher prices ahead in the intermediate-term.  From a spike in panic readings last Tuesday to multiple 1% up days coming out of a 52-week low to heavy volume on a big up day, what we've seen so far has almost been a classic recovery.

 

I say "almost" because the one thing we have not seen is a day with ridiculously lopsided positive breadth and up/down volume numbers.  I've touched on this several times over the past week, and it continues to nag me.

 

I went back to 1965 and looked for any time the market was in a similar situation to now.  Basically, I wanted to find times when the market was oversold (meaning it had a 10-day Up Issues Ratio less than 45%), then put together a string of 1% up days in the S&P 500 (meaning at least three days with 1% gains within one week).

 

I then separated those rallies into "good breadth" ones and "bad breadth" ones.  The good kids were the ones where we saw at least one day with an Up Issues Ratio greater than 75% during the prior week.  The bad seeds were the ones where we did not see any kind of big positive breadth day despite the multiple 1% gains.

 

The table below shows the dates and forward performance in the S&P after the good breadth rallies.

 

 

click here for larger table

 

The results were fairly impressive.  From the short-term through the intermediate-term, the S&P was solidly positive.  There is nothing great among the numbers, it's actually less skewed than most of the studies we looked at during the past week, but we're also now coming out of a more oversold condition than we were during most of the times in this table.

 

Now let's look at the bad breadth rallies:

 

 

click here for larger table

 

This is what troubles me.  In the short-term at least, the S&P had difficulty holding on to the 1% gains when breadth never showed a big positive surge.  The last few times we've seen this, all led to failed rallies during the last bear market.

 

Strangely enough, the three-month results were actually more positive than the "good breadth" rallies in the first table, probably owing to the fact that these "bad breadth" rallies tended to fail in the short-term and lead to even-more-oversold conditions.

 

Also causing me a bit of a pause again in the short-term is our Short-term Indicator Score, which almost made an all-time extreme as of yesterday's close.  At 19%, we're now seeing the most-stretched reading since March 2000.  That month has bad connotations, but I'm not reading anything that sinister into it.  In fact, it could actually be a positive longer-term sign that we're seeing this kind of buying interest coming out of such oversold longer-term conditions, and haven't backed off much from the prior round of short-term overbought readings.

 

But as far as new positions go, I find it extremely difficult to try buying into these kinds of conditions, even given that I'm positive on the intermediate-term.  As the indices bump up against possible resistance levels (1280 on the S&P 500, 12000 on the DJIA and 720 on the Russell 2000), and we see these kinds of short-term readings, aggressive traders may be looking to sell short against those resistance areas looking for at least a temporary rest again.

 

I'm not quite prepared to do that at this point, but that may change before the day is out if we get closer to those levels on the indices.  Again, though, any negativity is based in the short-term only as the one- to three-month time frame has looked quite positive ever since last Tuesday.

 

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Short-term Model Conditions

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Investors - Next 1 to 3 Months

 

As of:

SPX 1260

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Some Positive Signs, Finally

07/18/08 4:15 PM EST

 

In the last Long-Term Summary from July 10th, we discussed the fact that the Smart Money / Dumb Money Confidence got pushed to an extreme with the latest sell-off in stocks.  The Dumb Money had become so despondent that they were only 17% confident in a market rally.

 

Those are the kinds of readings we typically see near an exhaustion point, but one thing we hadn't seen at the time was panic.  There were really no signs among the multitude we follow that suggested that folks wanted out of stocks NOW...and those are the kinds of situations we need to see during bear markets in order to better judge the risk/reward of stepping in on the long side.

 

We finally got that this week, as stocks slid on Monday and continued into Tuesday.  That was the clincher, as we finally got a spike in some of the panic measures we follow.  In the daily comments, we noted how the market has usually performed after a spike in the VIX/Treasury ratio, a huge surge in volume, and also when new 52-week lows show a big expansion.  They did so this week, setting a new all-time record for the number of securities hitting a new low on the same day.

 

We also had the headlines blaring about bank failures and the wiping out of investor capital.  As we went over in a Data Brief, in the past these big bank failures have led to outstanding stock market returns going forward, as hard as that is to believe.

 

So we had the ingredients for a real rally, finally, and stocks followed through over the next couple of days.  The buying interest was keen enough that once again we saw a huge surge in composite volume yesterday, which is rare when the market rallies.  We showed a table today that looked at S&P 500 returns when we've seen that sort of thing in the past, and again it helped to confirm the idea that we've probably seen the bulk of the selling pressure for now.

 

Shorter-term, we hit a plethora of overbought readings, and the market has struggled with those for the past year.  It usually does, with one consistent exception - when stocks are emerging from intermediate-term oversold conditions.  When we become short-term overbought in those cases, we often see stocks continue to power higher in spite of the overbought readings.  That is a sign of intense buying interest, and a good signal that the rally has more to go in the coming weeks.

 

The jury is still out as to whether we're going to see that this time around, so the next week will be interesting to watch.  I do think we'll back off some due to these overbought readings and the price pattern we've seen the past couple of days, and we also have the great unknown of earnings releases that will surely push us violently in the short-term.

 

But for the first time since March, I'll be looking to add intermediatete-term longs on further weakness, assuming we don't go on to set lower lows from what we hit earlier this week.  We're going to move our Signal Strength icon to 25% Bullish at this point based on what we went over in the paragraphs above, but believe there is probably a better actual entry coming in the near future.

 

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Long-term Model Conditions

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Indicators at Extremes

BULLISH FOR STOCKS

Listed in order of shortest-term to longest-term

BEARISH FOR STOCKS

Listed in order of shortest-term to longest-term

Odd Lot Purchase Percentage

VIX Transform

NH/NL Ratio - NAZ/NYSE

OEX Determination Index

Rydex Bear Fund Asset Flow

Rydex Bull Fund Asset Flow

Rydex Ratio

Rydex % of Sectors w/Assets > 50 Day Avg

Carpenter AnalytixTM Hedge Fund Exposure

Small Speculators in Equity Index Futures

Sentiment Survey - Investor's Intelligence

Sentiment Survey - Consensus, Inc.

Sentiment Survey - AAII

Dumb Money Confidence

InsiderScoreTM Buy/Sell Ratio

Short Interest - Nasdaq/NYSE (de-trended)

Available Cash - NYSE

 

*  STEM.MR Model - NDX/S&P

*  Price Oscillator - NDX/S&P

*  Intraday Cumulative Tick - NAZ/NYSE

*  Liquidity Premium - SPY

*  Rydex Bull/Bear RSI Spread

Up Issues Ratio - NAZ

VIX/VXN

 

 

 

* New extreme today

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SeasonalityData

 

Today's Seasonality Index:  0

 

July 23rd is the 16th trading day of the month, and 141st trading day of the year.

 

The "Day of Month" numbers in the chart above correspond to trading days, not calendar days.  The chart displays averages over the past 50+ years, and some current months may have less trading days than shown in the chart (i.e. a current month may have only 19 trading days, but previous years have had 20 or 21 days).  In those cases, simply ignore the days that would not be applicable to the current month.

 

Find more seasonality data

 

 

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