Friday, December 28, 2007

Friday Market Sentiment

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

Sorry to the lack of posts over the last few days.  I lost my internet connection.

 

The bloggers are back near their bullish extreme which isn't good, but the individuals have remained quite bearish which works in favor of stocks.  So I guess the two are a wash.  The newsletter writers matter a lot more because they probably come closer to reflecting the attitudes of the investors who control the real money that moves the market.  Unfortunately, the newsletter writers are bullish and have been for some time working against higher stock prices from a contrarian sentiment point-of-view.  


The survey information above can be obtained for free via the following sites.  Investor's Intelligence is from Market Harmonics.  Individual Investors is from aaii.com.  Low Risk is from lowrisk.com.  Birinyi Bloggers is from Ticker Sense.  For additional information about market sentiment, I recommend a blog by Brent Leonard.


Sentiment analysis is an important component when following the markets, and is considered a “contrary” indicator.  Contrary because if too many people are bearish then there aren't enough sellers left, the balance tips to buyers, and the market starts to advance.  If too many people are bullish, most funds are already invested, the balance tips to sellers and the market weakens.  One way to determine if investors are bearish or bullish is by taking surveys and tracking at what levels these polls indicate investors are at the extremes of bearish or bullish sentiment.


Keep in mind, sentiment analysis is not a science and only provides very general information.  Sentiment is not a signal to take action, but provides background about the current state of the markets.  For instance, there have been many occasions when bullishness reached high levels well before the market started to weaken.



The folks at Market Harmonics are nice enough to publish this view each week of the newsletter writer's sentiment going back to 2004.  The best time to buy stocks using this contrarian-sentiment technique is when the bull sentiment is near or under 45%, and the market is far from that level at the moment.  Because of this, the current sort-of-rally we are enjoying is probably counter-trend shuffling within a consolidation trading-range.


This chart is intriguing and first shown last week.  The best technical indicator over the last 4 years has probably been just a simple pull back to the 80-week moving average.  We could have saved a lot of time analyzing and whatever, while making some good money.  The two 10-week averages of the put /call ratios helped to know about when to sell in order to lock up profits along the way.  Until now that is.  These two ratios are out-of-sync and I think it reflects the fact that the market remains in a multi-month consolidation that is causing the set cycles and patterns of the market to be confused.


I'm incorporating insider activity in the Friday Market Sentiment posts.  The information above comes by permission from the blog by Brent Leonard (thanks Brent!).  Let's view this data for a few weeks before adding comments. 
Posted by HeadlineCharts at 20:32:17 | Permanent Link | Comments (0) |

Thursday, December 27, 2007

Thursday Commodities and Currencies

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


Commodity prices are holding up, and this is good news for the economy.  It is unlikely that the economy can go from 5% quarterly growth down to a negative recession growth level without commodities taking a huge hit.  So you have to be very encouraged by these strong prices.  That's not to say there aren't some concerns.  Industrial metal prices are weak and just hanging on at the lows of a multi-month sideways trading range.  A break down for these metals would not be good.  Another concern is also what many people are talking about which is the strength in energy prices.  If they move too high too fast it could punish the economy at a time when it can't handle it.


56% commodity bulls is nowhere near as strong as this survey was in the spring and early summer, but still indicates commodity prices will retain current levels.  Firm commodity prices remain an important indication that the economy is still slowly growing and that works in favor of stocks.

Market Vane is a sentiment survey of commodity futures advisors, and is used by futures traders.  The survey result can be obtained for free via Investmenttools.  The publisher states that it should be used as an indication of the current short-term trend, with the idea that investments in commodity futures should be in line with the trend. 


 

If oil prices remain near their current levels, it is likely that uranium prices will start to firm up again after this retest of the lows is complete.  The retest looks to be part of a consolidation of the huge gains in 2005 and 2006, and after it is complete the uptrend will resume.  I really like the looks of this chart for future gains, but the wild card is oil prices.


The symmetrical triangle pattern for gold noted last week has worked out well.  The initial target is 88.  I believe that this may be the final  major leg up for gold since we are now in the last month or so of the strong seasonal period.  Besides, gold has made a very nice percentage move since the big break out in September and probably needs to consolidate and rebuild for a number of months.

Posted by HeadlineCharts at 20:31:05 | Permanent Link | Comments (0) |

Wednesday, December 26, 2007

Wednesday Market Momentum Breadth Volume

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


Last week we said that in order for this equity rally to succeed we need new lows to settle down to restrained levels such as 40 to 50 per day.  Well the market has rallied while new lows have declined.  But this level of new lows is probably still a bit too high for this to be the beginning of an intermediate-term rally.  These new lows seem more likely to be a level indicating that this is a bounce within the range of a sideways channel with a lot of churning taking place.



This chart above looks better to me than the chart of new lows.  The NASDAQ issued a decent signal today with a SAR buy on the summation index while the MACD histogram of the summation index remained on its buy signal from early December.  The NASDAQ index is now up against short-term resistance so it could give back some gains for a few days.  But I like the looks of this move for the summation index as it retested and then broke out higher from a low, oversold level while the histogram remained on a buy.



Move evidence above that we may see the market give back a bit short-term since the McClellan is now overbought.  If this short-term indicator can hold at around the zero level as the market corrects it will be a positive for higher prices going forward.




These two charts above attempt to calculate intermediate-term market momentem by showing the distance of the stock indexes above the 40-week moving average.  Notice how the NASDAQ starting finding support at the zero level last fall and held this level despite the horrendous market selloffs this fall.  This has to be considered a positive going forward as the NASDAQ corrected but retained its upward momentum.  If the market continues to correct and hold these levels, I think the stage will be set for another sustained intermediate-term uptrend in this aging bull market.
Posted by HeadlineCharts at 20:04:54 | Permanent Link | Comments (0) |

Tuesday, December 25, 2007

Tuesday Interest Rates & the US Dollar

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


Last week we mentioned that the distress in the market was showing in low TBill rates, and they needed to break out in order for stocks to break out as well.  On Monday, TBill rates made a strong move that works strongly in favor of stocks.



Above is the broader view of TBill rates, and they look like they are headed to about 3.5% where there is horizontal and down-trendline resistance. 


Another sign of distress is when Treauries outperform top quality corporates.  The relative strength ratio pointed to a serious problem back in July when it plunged.  Now it is starting to show some strength which means confidence is returning towards corporates.  If it continues to move higher it favors stocks as well.

Posted by HeadlineCharts at 19:28:56 | Permanent Link | Comments (0) |

Monday, December 24, 2007

Monday Sector Strength

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


Green is a shift up, yellow a shift down, and red is an index below the 80-week.

The traditional, low-volume, everyone-on-vacation, end-of-year rally is looking good with lot's of positive shifts of the major indexes above the 40-week moving average.  Even the small caps responded by shifting up above the 80-week average.  I'm sure though that Dow Theorists are noting that the Transports remain in a very negative looking divergence with the Industrials.  But these shifts above the 40-week look interesting to me, because most of them broke out with the 10-week average just about to touch the 40-week making the last several months looks like a healthy, sideways consolidations within a general uptrend.


Here's an interesting quote from John Murphy who quotes the annual Stock Trader's Almanac published by Jeffrey and Yale Hirsch .  Murphy writes ... "According to the 2008 Almanac, the Santa Claus rally brings a "short, sweet, respectable rally within the last five days of the year and the first two in January". That puts it mainly between Christmas and New Years Day. There's a caveat though. According to the Almanac, "Santa's failure to show tends to precede bear markets". That makes what the market does between now and yearend especially important." ... I didn't know about this, so the last few days are so far favorable for next year?  I like it.

Murphy also mentions the January effect ... "The so-called "January Effect" refers to the tendency of small cap stocks to outperform large caps during the month of January. According to the 2008 Almanac, however, "most of the January Effect takes place in the last half of December". The Hirsch's suggest that if you plan to take advantage of the small cap surge, it's probably a good idea to get a head start in mid-December." ... Gee thanks, John, for mentioning this on Christmas eve which is well past mid-December!  John is forgiven though, because, afterall, his texts taught most of us what we know.

Posted by HeadlineCharts at 15:18:20 | Permanent Link | Comments (0) |

Saturday, December 22, 2007

Saturday Bullish Percents

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

The ECRI forwarding-looking economic index continues to tick lower and lower, but ECRI is still not calling a recession.  The ECRI future inflation gauge also remains contained indicating future inflation at about the recent 2-3 year trend.  I highly recommend a subscription to ECRI. 

ECRI also publishes a future residential real estate gauge that continues to point lower.  Their calculation of national average home prices is interesting though.  It shows prices collapsing for the first time since the index was started in the early 70's.  Although there have been serious corrections in the past, this is the only one in which there was a dramatic decline.  Usually home prices decline gradually (and painfully) over a long period of time.  A collapse sounds bad, but an article in business week mentioned that this rapid decline may be a good sign of purging of the excess quickly so that real estate doesn't remain a protracted drag on economic activity.  BW mentioned that in the past sellers couldn't bring themselves to lower their asking price, and then ultimately sold for far less than they would have had they just met market price conditions when they originally wanted to sell.  In this recent down cycle, sellers seems to be savvier about pricing appropriately. 

Regarding blogs to read, I enjoyed reading Tim Knight's bearish outlook, but didn't agree with his assessment of where prices were headed over the past week.  He was caught on the wrong side of the market and called this past week "craptastic".  He included this quote, "All along, I've been saying "if we cross above this, it's bad", and "if we cross above that, it's bad." Well, this, that, and the other all have been crossed. This week came to a wretched end."  Tim gets my sympathy.  We've all had a few investing weeks like that.  Usually the bears are very bright but have a gloom about them.  However, Tim Knight has managed to be bearish, bright, interesting, upbeat and funny in his blog.

Now that I'm taking an interest in residential real estate, I thought I would check out this blog with an interesting name, biggerpockets.  Also, I probably don't mention this enough, but thank you for reading HeadlineCharts and sending me your comments.  It's a lot of fun playing this stock market game together.




Red is a column of O's in a downtrend, blue is a column of X's in an uptrend.  Below 30% is oversold, and above 70% is overbought.  Yellow is a shift down, green is up.  

Above is my spreadsheet of the bullish percents.  For the second week in a row I'm not finding much information in it about where the market is headed.  All but a few of the major indexes are below the 50% line which indicates that this sideways trading range has a definite bearish bias.  But the good news is there is enough strength remaining in the market to keep it alive and moving along in what may turn out to be a very healthy, multi-month consolidation.  However, the recent market strength is not reflected in the bullish percents above, not yet anyway, so a year-end rally is likely to remain within the current range and ultimately result in another test of the lows of the range.  Also note that some of the most important bullish percents such as the SPX are still below 50% and have not turned up which indicates underlying weakness.

The bullish percents of the banks and S&L's turned down again showing continued weakness for these stocks.  Their bullish percents have turned up and down a couple times at this low level indicating that the selling isn't letting up.  When the bank's bullish percent finally breaks out of this oversold low, it could be a very profitable signal.  This is why we use bullish percents, because it helps us know when a price rise in an index such as banks is just a fakeout bounce with weak breadth and participation, versus a real break out with confirmation that we can buy into.  Also, it may be that the market's trading range is not going to resolve itself until the financials have finally been sold by every pair of weak hands out there. 


We can rely on ECRI to let us know if a recession in our future, but it's our job to determine if we're in a primary bull or bear market.  The chart above is what Carl Swenllin is watching to make that call and so far it looks like his chart shows the bull trend is intact.  I've added the RSI indicator above.  If the moving average crosses below, combined with a breakdown of the RSI below support we likely have a bear market.  However, you may notice there was one false signal in 1998 during the Asian currency crisis, so this chart isn't a guarantee.

Posted by HeadlineCharts at 15:06:24 | Permanent Link | Comments (0) |

Friday, December 21, 2007

Friday Market Sentiment

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

The stock market certainly felt good today.  It seems as though we have kicked off our end of year rally and some money will be made.  However, this probably was a bounce off the oversold lows of a trading range.  I base this on the high level of new lows which indicate underlying distribution... despite the excellent advance by the averages.  But I'll take what I can get in this market.



Sentiment went in different directions this week.  The bloggers and individuals really helped us out with their depressed views of the market and provided fuel for the new short-term uptrend.  But the newsletter writers are really spoiling the party with their extreme bullish sentiment which will be a real drag on future stock price appreciation.  These surveys present a mixed picture, but I believe the writers are more important and work against stocks.  Based on a contrarian interpretation of the newsletter writer's survey, the market is not ready to begin a sustained, multi-month, intermediate cycle advance.




Above is broader view the writer's sentiment showing both bulls and bears, both of which continue to move in the wrong direction.   A sustained market advance is very difficult to achieve if investors are too optimistic, and it looks like our new rally will likely burn out quickly based on this sentiment picture.




The put /call ratios are out-of-sync at the moment and not offering much help.  The total put /call ratio is at the wrong level to help with stock prices.  The equity-only ratio is more favorable, but I would expect it to be forming a nice peak like the prior periods rather than the sideways squiggly currently shown.  Bottom-line, I think this chart is showing that the market is trapped within a trading range and needs time to resolve itself.  In the meantime, we'll be taking advantage of any uptrends we get even if they only last a few weeks or so.

Posted by HeadlineCharts at 19:57:29 | Permanent Link | Comments (0) |

Thursday, December 20, 2007

Thursday Commodities and Currencies

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


The day started out strong, then had the feel of yet another failed rally until the market turned around and finished strong.  T-Bill rates touched the lows for December, new lows were very high, and prices lower after the gap open... then T-Bill rates firmed along with stock prices.  Today may have been the kick off for the end of the year rally, but for that to happen prices need to exceed overhead resistance, T-Bill rates need to behave, but most of all new lows need to settle to below 50 or so with new highs well above 50.



The British Pound is the first currency to join the US Dollar under the 40-week.  The Aussie Dollar looks like it is next.




Commodity prices seem to be holding up, but industrial metals are weakening, which is an indication of the worldwide economic slowdown.  But so far, commodities retain enough price strength that they are not a drag on stock prices. 




58% commodity bulls isn't bad considering the amount of bad news about the economy hitting us everyday.  Firm commodity prices remain an important indication that the economy is still slowly growing and that works in favor of stocks.

Market Vane is a sentiment survey of commodity futures advisors, and is used by futures traders.  The survey result can be obtained for free via Investmenttools.  The publisher states that it should be used as an indication of the current short-term trend, with the idea that investments in commodity futures should be in line with the trend. 

Posted by HeadlineCharts at 20:52:23 | Permanent Link | Comments (0) |

Wednesday, December 19, 2007

Wednesday Market Momentum Breadth Volume

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


New highs /new lows are my goto indicator and they have been terrible.  There have been a couple brief periods where new lows settled down to around 50 or less per day, but other than that the new lows indicate a market in a correction since late October.  Stocks are now short-term oversold again so we may see some buying soon, but unless these new lows trend down and stay down, any rallies are probably just countertrend bounces.




Price levels just above the 80-week has been the line in the sand for NYSE stocks.  Buying at these levels has been rewarded in the past.  Of course, the market is different now and under enormous stress.  Still, the bad news has been relentless and the selling brutal, and at some point that becomes fully reflected in stock prices. 




Prices near the 40-week has been support for the NASDAQ for about a year.   So now the market is oversold and at support, and usually that means a low-risk opportunity using tight stops.  I'm not sure that is true this time and getting into the market in front of a bounce may not work this time, or may not be worth the risk.  TBill rates plunged again today, and II sentiment was very bullish which works against higher prices, and new lows are elevated.  Before putting much money back into the market, I'm waiting for these conditions to be more favorable.



Arthur Hill's column today noted the weakness in the NDX similar to our post last Saturday.  The bullish percent has broken below support to confirm the downtrend and the very poor NDX breadth.  The rally to 2142 looks like it fits very nicely as a fib retrace and a lower high in a weak trend.
Posted by HeadlineCharts at 14:52:08 | Permanent Link | Comments (0) |

Tuesday, December 18, 2007

Tuesday Interest Rates & the US Dollar

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |


Money flowed out of longer-term instruments and into short-term TBills due to last week's inflation scare.  I'll be watching the ECRI future inflation gauge to determine where inflation is headed, but will also enjoy reading the comments of economists debating whether we are headed for inflation or deflation.  Larry Kudlow believes that with Fed Funds at 4.25% and the 10Y at 4.12%, the yield curve is inverted.  This is no time for an inverted yield curve if the Fed is trying to save the last traces of economic growth.  But if there really is inflation, the Fed has no choice but to leave Fed Funds near current levels.  They are in a tough spot, but I guess it's what they get paid for.  For now, I see the shift higher in the traditional yield curve of US Treasuries off such incredibly low levels as a plus for stocks.




Tbill rates have retested the August lows and have headed higher in the last two sessions.   This is a plus for stocks as it indicates some easing of the stress on the markets.  I don't see how stocks can rally unless the Tbill rate stabilizes and heads back up towards 3.5%.  



Finally, the US Dollar has found a bottom with the BOE lowering rates and the ECB likely to be forced into lowering soon.  I'm not looking forward to having all our US properties and corporations purchased by foreign countries, but what else can they do with all that US money and where else are we going to turn to bail us out? 
Posted by HeadlineCharts at 20:45:27 | Permanent Link | Comments (0) |
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