Tuesday, November 24, 2009

Snoozefest in the Market Today

Just a brief holiday week update. Nothing spectacular in today's market snoozefest. I don't want to read too much into any signals or indicators right now with such light volume, but the one thing of interest includes this week's and prior week's data. Volume has fallen off a cliff. Look at the daily S&P cash chart on the past rally phase since early November. That huge rally was done on declining volume, falling significantly short of the 13 day moving average through most of the rally. Combine this with the Dow making a new 13 month high yesterday while virtually no other index or sector followed suit, you have a fractured and weak market. That doesn't mean the market has topped and will roll over immdiately. But with this kind of behavior after the market has rallied 50%+ since March this year, it's certainly not a time to start getting long, in my opinion.

With light volumes over the holiday week I can't say much of anything with a strong level of certainty, but I do still hold the short term bearish view from last week as long as the S&P cash trades under 1114.

I don't want to get all preachy but I do want to share something that's important at this juncture in the market and the year that I've learned while trading the markets. As the holidays approach it's good to always keep the markets in perspective and realize that its behavior and our portfolios pale in comparison to the importance of good family, friends and health. Enjoy as much as you can with them as the holidays approach, and remember that the market is just a game, and that true happiness will ALWAYS result from relationships we build with our family and friends, not the market. Tomorrow is a heavy news day so we may get something worth reporting. If not, I probably won't be back until the weekend or Monday.

Happy Turkey Day!!


adan said...

hey, can't be said any better than this:

"As the holidays approach it's good to always keep the markets in perspective and realize that its behavior and our portfolios pale in comparison to the importance of good family, friends and health."

happy holidays todd!

Gustavo said...

What I can see in my horary zone is another boring day in the stock markets what don't want to go south never and never. And the dollar trashed and the gold up and up and up.
When every day I feeling: "Today will be a very big fall".
I cannot feel in another form sorry, because if I am thinking the market need to go up surely goes down.
I am permabear until one big bear market happend.


Rob said...

Todd, excellent blog. You have sharp insight, many thanks for sharing it.

To me the big story of today (Wed.) was how the dollar tanked and equities did *nothing*. Seeing EUR/USD rocket up Tues. night, I thought SPX would finally make a run at 1121 Wed. morning. But come morning, SPX was vacillating over whether to go up at all, and when it finally did go up the move was weak and sluggish (while EUR/USD continued spiking, to new recovery highs).

We've been stuck in this 1086-1113 range for almost three weeks now, and I thought today made the current uptrend look pretty exhausted. Perhaps today was just an outlier and shouldn't be over-analyzed, but it makes me wonder if we are reaching a point of diminishing returns where continued flogging of the dollar will yield fewer and fewer SPX point gains.

(I also wonder how much more the dollar can be flogged, even with the Fed's complicity. EUR/USD is now very close to the heavy resistance zone of 1.52-1.53. And as a 'socionomic' sign, the weak dollar is starting to get lots of media play, not just financial media but also general media. I was watching the Jay Leno show the other night, and he was making jokes about the weak dollar. Sort of reminds me of how people were talking about the weak stock market in late February.)

I can't make heads or tails of the wave count these days, but short-term, after today's showing, I just don't see how equities could go more than a quick spike higher without a decent retracement to bring back dip-buying and short-covering.

Happy Thanksgiving!

Gustavo said...

Hello Todd:

Looking confirmation for my bearish case I get this nice article in Bloomberg today:

Pessimism on U.S. Stocks Falls to Five-Year Low, Survey Says

By Elizabeth Stanton

Nov. 25 (Bloomberg) -- Pessimism about U.S. stocks among newsletter writers fell to the lowest level in five years after the Standard & Poor’s 500 Index rose to a 13-month high.

The proportion of bearish publications among about 140 tracked by New Rochelle, New York-based Investors Intelligence dropped to 17.6 percent from 21.3 percent the prior week. The last time so few were bearish was June 2004. The percentage of surveyed newsletter writers who are bullish increased to 50.6 percent, the highest since Sept. 1, from 46.1 percent.

While declines in the number of pessimists are viewed by some analysts as negative for the market, optimism on U.S. stocks remains relatively low, suggesting the rally that began in March may continue, said Michael Burke, co-editor of Investors Intelligence, which has tracked sentiment since 1963. During the 2002 to 2007 bull market for equities, optimism peaked at 62.9 percent.

“When you have low numbers of bears, that’s potentially very negative,” Burke said in a telephone interview. “Most people don’t think the market is going to go down, but you don’t have a huge number of people saying it’s going to go up either.”

When the S&P 500 and Dow Jones Industrial Average climbed to records in October 2007, the bullish percentage exceeded 60 percent. The S&P 500 then fell 57 percent to a 12-year low of 656.53 on March 9, 2009. It rebounded as much as 64 percent, closing at a 13-month high of 1,110.32 on Nov. 17. It is little changed since then, at 1,108.59 as of 10:53 a.m. in New York.

The percentage of writers who anticipate a correction, or 10 percent decline in the market, fell to 31.8 percent from 32.6 percent. There have been only 36 weeks when the reading exceeded 30 in the past 20 years.

“People don’t want to be bearish when the market is going up, but a lot of people are frightened to be bullish, so there’s an abnormally high correction number, too,” Burke said. It’s “an unusual combination,” he said.


Todd said...

Gustavo, as I'm sure you know, with light volume and trading it's difficult to put too much weight into the traditional indicators so things get wild as you saw yesterday. And thanks again for another great article find and showing how pessism has fallen hard. It seems that folks are as optimistic as they were at the 2007 peak, yet we're still about 30% below the highs from then. That smells like a bear market rally from March, doesn't it?

Todd said...

Rob, thanks for the kind words and insightful comments. You are dead on about the EUR/USD rocketing higher while the stock market remained flat. The stock market has been laboring in trying to make gains lately has been net sideways for weeks. A lot of fracturing and divergences have been occuring and the one you pointed out regarding the EUR/USD proved to be a great short term indicator for the sell offs that occurred globally yesterday and today (US). It seems like no one is bullish the dollar, and average folks I talk to all think the dollar will be "devalued" or are asking me if they should buy gold, and how they can short the dollar. This is of course a big contrarian indicator that the dollar is finding a bottom and should be bought.

The action in the AUD/USD is very bearish and suggests that the US dollar may have found it's legs, while the EUR/USD appears to have thrusted from a triangle and has reversed sharply since doing so. According to EWP, thrusts are terminal moves and lead to a trend reversal at some degree.

So the dollar's action against the Australian dollar and the euro is hinting that it's found a bottom. If the dollar has found a bottom then the stock market probably has made a top.

Next week will tell us a lot.

Thanks again for the comments, Rob. I hope you continue to share you insights here for everyone to benefit.


donatoloscalzo said...

The last five mondays did see 4 big jumps up four times and once down. So, we need to be watching out for the bulls and the FED manipulators. having said that though, the technicals are very bearish, the internals are almost scary. So, it should be an interesting week.........

Todd said...

Thanks for doing some research on the past few Mondays for us. The data I saw on this originally was on CNBC and it showed that Mondays have been quite bullish, and I know some in the past may not have closed up that much, but the day started down a lot and then rallied most of the day. I'd like to see that trend change if in fact the market has indeed changed trend as well.

Looking forward to Monday!

Thanks for your comments.