HeadlineCharts.blog.com

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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 |

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I'm skipping the sentiment survey tonight.  I think it is a great indicator of the longer term prospects for the market, and it looks good.  But right now it isn't as important.  The put/call ratio is more important for the short-term, and it is at the wrong end of the range.  Stocks need to correct again before they can move higher.

 

The Investor's Intelligence Newsletter Writers Sentiment Survey has finally turned up.  Although we like to see very negative readings, at this point some tiny bit of optimism off these extremely bearish levels is welcome.  It has to mean that some new money is starting to flow to stocks, maybe a good signal for the longer-term.  I'm a big fan of following this sentiment indicator, but at the moment I don't think it is the most important factor in the market.

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Ken Tower likes to follow the VIX.  He likes to see it confirming the uptrend in prices.  As long as the VIX is trending lower, and is below the 10 and 21-day averages, with the 10-day below the 21-day, the short-term uptrend in prices is supported.

Since Ken Tower is calling the market so well right now, I will probably be following his advice very closely as prices approach another short-term pivot point high.

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This indicator worked really well for me during the bull market, but it is no longer in sync with prices as they decline in this new bear market.  Still, I don't like the looks of this at all.  To me, this is a major caution signal that after this brief rally has played out, the larger downtrend will re-assert itself.

Usually the time to buy the market is when the 60-day average of the put/call ratio has reached a peak and starts to decline.  On the other hand, prices usually sell off as the indicator rises, and it looks like the indicator is starting to turn up again.

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Below is the analysis from Investor's Intelligence.  These are great numbers and could be very favorable for higher stock prices ahead from a contrarian point of view.  But, as they mention, this level of negative sentiment can last a long time before the bear market bottoms out.  If you don't remember the 1995 market, it was a very long, sideways consolidation that led to a gigantic breakout in prices.

"The bears reached 50.0%, the highest number since January 6, 1995 (50.9%)...   It appears many of the newsletter editors have staked their claim as bulls or bears and they will now await some significant market move or news event before they change their position. During the period fifteen years ago, when similar sentiment readings were last shown, the bears outnumbered the bulls for 46-weeks.  [Investor's Intelligence, July-30-2008]"

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Ken Tower uses the 10-day average of the put /call ratio to help measure sentiment.  He doesn't like the fact that the average is approaching the prior low.  I look at the put /call ratio in a lot of different time periods, primarily the 60-day average, and none of them are favorable for higher stock prices at this time.  This chart shows there is some room for higher prices short-term, but it really seems as though this measure of sentiment is not as bearish as it should be to lead to a sustained uptrend.

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Above is the relatively new indicator from Vix and More.  This indicator isn't yet time tested, but so far so good in terms of market signals.  And it is right in the middle of the range favoring higher prices short-term.

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More from Ken Tower.  This is the chart of volatility he likes to use.  The VIX and VXN must be in sync with one another, and pointing lower, in order to confirm the short-term uptrend in prices.  And they need to be below both the 10-day and the 21-day, with the 10-day below the 21-day.  This chart continues to confirm his "buy" signal on July-16.

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The Investor's Intelligence Newsletter Writer's sentiment survey is at record pessimistic levels.  From a contrarian point of view, this is highly favorable for stock prices.  One analyst mentioned a while back that this survey doesn't give a buy signal until the bull/bear ratio starts to move upwards again.  I'm not sure about that, but with the market outlook so negative, it creates a floor of support under prices because most investors have completed most of their selling and are on the sidelines in cash.

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Ken Tower keeps his eye on the VIX to help determine market direction.  For Ken, a short-term uptrend in the equity market needs to be confirmed by the VIX trending lower below the 10-day and 21-day moving averages.  But you have to be careful of the occasional whipsaw fakeout such as late June.  The VIX closed for one day below the averages, but then shot up again creating a false signal.

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I'm having a hard time reading into the put/call indicator.  I'd feel a lot move comfortable about the prospects for higher prices if the 10-day ratio had reached up to, or above, the prior distress peaks.   The lack of put buying could be indicating a bit of complacency that the worst is behind the stock market, which is unfavorable for stock prices.

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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 |

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These are really excellent sentiment readings from the newsletter writers.  This is very bullish for stocks from a contrarian point of view.

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The 60-day put/call ratio is not cooperating.  This indicator served me really well during the bull market, but it failed me miserably during the selloff late last year.  Right now, it sits exactly opposite of where it should be if you want to go long the market.

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Congrats to Bill Luby at VixandMore for coming up with an excellent new indicator.  And just when you thought every conceivable indicator had been developed.  This worked well during this downturn.  Right when the indicator hit the peak, the market rallied.  Nice.

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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 |

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Alicia K. asked about Ken Tower's comments regarding Friday's market.  Tower didn't have much to say but he noted that the selloff could have been a lot worse given the degree of bad news (financials and oil), but he gave no indication that he thinks the selling is over.  He also mentioned that he hedged his portfolio again earlier in the week using SDS.

Dogwood sent a note to say that the reason Aluminum is spiking is because the Chinese cut back on production to save energy, and that may be causing a shortage leading to higher prices.  Thanks Dogwood!  Hmm, I wonder if the same will happen with steel and other industrial materials that use a lot of energy to produce.




I've decided not to show the bullish sentiment surverys for the individuals and the bloggers any longer, but will continue showing the newsletter survey.  I think the newsletter survey is much more important than the others, plus it takes a little too much time to put all three together in the graph.  Also, aaii now wants users of the data to register with them, and Birinyi seems to have lost some interest in the blogger survey and hasn't added any new bloggers to the group in a long time.

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Here's quote from Investor's Intelligence, "To find a more pessimistic reading, you have to go all the way back to early July 1994 when the bulls were below 25%."  How is that for market pessimism?  With writers this negative towards the market, you have to believe that very soon we are going to find at least a tradeable, short-term bottom in the market.  Someone noted during the last selloff though that the move off the lows in bullish sentiment is needed to confirm a new uptrend in prices.  I don't know if this is true, but it makes some sense.

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Corporate insiders love their own stock these days, and are buying it up instead of selling.  With the sentiment surveys, we look at bullish levels as a contrarian indicator.  But the level of insider purchases is the opposite.  If the insiders are bullish then we should be too... and this 7:1 ratio is close to an extreme of insider bullishness according the Brent.

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Look at these put/call ratios.  They are near the upper range, but they don't show the kind of spike we want to see in a capitulation sell off.  I guess investors are so used to hearing the bad news it isn't having an impact.  Or maybe most investors are out of equities or hedged already, and are at the beach waiting for the bad seasonal period for stocks to play out before getting interested again. 

If we do get a rally, the first target is the 1300 level, and then the 200-day near the 1400 level.  At the moment, 1400 seems like a stretch, but who knows if oil finally sells off.

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This is a new indicator to me, but I like the looks of it and have been following it this year.  The peaks really look to correspond with the price lows and vice versa.  Even this indicator is not at an extreme yet, but at least its getting close.

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The survey information mentioned can be obtained for free via the following sites.  Investor's Intelligence is from Market Harmonics.  Individual Investors is from aaii.com.  Birinyi Bloggers is from Ticker Sense. 

For a thorough review of market sentiment, I recommend Brent Leonard.  For excellent information about the VIX, check out VIX & More and Marty Chenard.

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.

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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 |

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All eyes are on how high oil can climb and how low financials can drop.   Oil may have reached its peak, so now we look for a low in the financials.  I don't think we are there yet but we could be getting close.  I am also expecting the materials and energy stocks to correct before this downtrend is over.

The sentiment surveys are looking favorable.  The current levels certainly work in favor of higher prices, but I would think they need to stay at these levels for a number of weeks before another bottom is in for the market. 

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These charts are starting to look really good.  These are favorable levels from a contrarian point of view.  Let's assume they need a few more weeks to find their lows and show the signs of bottoming out along with the market.

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Insiders are giving good signs as well.  The surveys should be viewed as a contrarian signal, but the insiders are not.  When insiders are buyers we should be buyers too.  Looks like the insiders are favoring their stocks, particularly the financials, but are sellers of energy stocks.

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Now the analysis gets a little more difficult.  The total put /call ratio is giving its first signs of concern about the market.  That's a good indication, but if a bottom were close we would have seen this spike in the ratio a number of days (or weeks) ago.

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This is really frustrating.  The newsletter writers are gloomy and have been for a few weeks, but the put /call ratio is out of sync with that gloomy sentiment.  The 10-week average of the total put /call raio is at the sell level, not approaching the buy zone as we'd like.  So before getting too excited about finding lows in the market, let's keep this chart in mind.

My take on things is that the financials and discretionary stocks are going to remain weak as long as energy and the related stocks remain strong.  My guess is that the market won't find a low until materials and energy follow the market lower...

I'm reading Ken Tower and IBD carefully to get their feel for the market status.  Here is what Ken said today, "We’re getting closer to a bottom, but there was nothing climactic in today’s decline, so I don’t think we’re there yet."

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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 |

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The newsletter writer's sentiment survey hasn't changed much so I decided not to show it today.  It's a bit too high to expect it to do much to support prices, but not so high to expect sharply lower lows in the market.

The moving average of the total put/call ratio shown above is at the wrong end of the spectrum for higher prices.  This is bad positioning leading into the summer for the market.  I forgot to remove the comment about 'approaching' the sell zone.  It has now crossed well into the area to expect downward pressure on prices.

Bottom line... the market is in a base building process where the top has been tested, and prices are now likely to stair step lower and then bounce off the lower end of the range in the coming weeks.

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I created the above chart from some notes written by Mike Burk of Alpha Investment Management who sends out free newsletters.  I've been following his comments on the market for some time and he knows what he is talking about.  Of course, I take an extra interest in his comments because he likes to use the new highs /new lows indicator in his analysis.

Some of the labels in red are a bit questionable, but I like the general point he is making.  The net new high/lows are trending favorably even though prices have not yet given the solid signal that they've broken the downtrend.  This is a bull divergence in the market and indicates to Mike that the next test of the market price lows may result in forming a significant bottom.

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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 |

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The surveys are generally favorable for higher stock prices from a contrarian point-of-view.  The newsletter writers remain cautious about stocks even though their sentiment had followed the market higher from the March lows.  Last week they were way down, but then snapped back with the fake-out rally that ended on Friday.  My guess is that this sentiment is too skeptical for the market to decline too dramatically from here, but that it isn't skeptical enough yet to support a bottom in the short-term trend.

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The market is giving mixed signals.  The March retest included some nice bullish divergences, but the rally so far looks like a retrace that failed right where you would expect it to... for the SPX it was just under the 200-day average.  The RSI momentum indicator failed right at the 60-level that tends to be the upper limit for bear markets.  And the breadth indicators have turned lower where you'd expect in a bear market forming lower highs. 

The Elliott wave labeling is questionable, particularly because the Oct-2002 to the Mar-2003 low is unresolved.  But this labeling, in my opinion, is better than the labels I've seen that show the August 2004 low as the end of wave-4... with a very long and extended wave-5 through to the summer of 2007.

If the labeling in the chart above is correct, then we are likely to retest with the worse case being around 8400 - 8500, and then begin wave-5 up. If the labels are wrong, the alternate is probably the one mentioned from the various Elliott Wave blogs where wave-5 up ended last summer.  If that's the case, the market is currently headed south to a 50% retrace at about 7400, or to the support around 6500.  Comments are welcome.

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I'm obviously in the mood to mix it up and take a week off from the same old charts.  I like to take charts I read on the web and copy them into my own chart folders, and periodically take a look and see how well the analyst did.  I try not to throw the failures in anyone's face, but love to point out the successes.  

Here's a great new indicator from Bill Luby the VIX guy.  This indicator has now worked quite well to warn of the two recent intermediate peaks, and decent signals regarding the lows.  This has gone into my permanent chart collection of sentiment indicators.

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Technicians are obsessed with the VIX, so I made it my mission to use it even though I really didn't get it for the longest time.  I'm starting to have more confidence in this indicator but still defer to the experts to interpret it for me.  Another strong analyst using the VIX is Robert McHugh who likes to use bollinger bands around the VIX and sees market risk when the VIX dips below the lower band.

McHugh is a bear who sees declining markets in every chart, and government intervention in every market rally.  No wonder he found a good indicator to help predict declines, and this one works pretty well giving advance notice that a decline is around the corner.  He doesn't say much though about the spikes above the upper band.  Certainly looks a violation of the upper bollinger signals a bottom is near, although, the spike probably needs to occur at a higher level than the one last Friday.

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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 |

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I'm up to 15% cash.  Not that I am real cautious on the market, but I had raised 10% as a downside cushion and another 5% by selling commodity ETFs in anticipation of a correction due to rising bond rates and a higher US Dollar.  I still like commodities longer-run, but just not right now.

The total put/ call ratio was a very good market indicator last fall, and it is now in the sell zone.  Not good, particularly when you combine it with the bad season for stocks.  My view is that stocks will be disappointing in June, but won't dip below the low end of the trading range.

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Well, every survey is now back in the range that favors stock prices.  There's lot's of skepticism out there, and those of us who like buying stocks are happiest when most of the people who follow the markets are feeling negative.

Now we have to square the unfavorable 10-week put /call ratio with the favorable sentiment surveys.  I think its a draw pointing to a churn in a trading range in the weeks ahead.

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The bull /bear ratio is supportive of stocks, but it is pointed lower which means we could correct a bit until the sentiment stabilizes at a low level.  This is more evidence of a trading range.  15% cash feels about right for this market.  

I'll be in no rush to deploy the cash back into stocks.  I'm watching my favorite areas for opportunities.

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