Recently the stock market has been acting quite well, but it has not yet left the confines of its recent trading range. It is now once again approaching important lateral resistance levels and has just overcome the 200 day moving average.

 

There seems to be an emotional roller-coaster at work. A mere two weeks after recording the lowest bull ratio since the March 2009 low, the AAII bull ratio has jumped back to one of the highest levels of the year. Also, as we noted previously, there has been a very large number of so-called '90% days' since the April high (days when up or down volume is 90% or more of up and down volume combined), and there were several appearances of the 'Hindenburg Omen'. This combination suggests a very unstable, technically conflicted market, prone to a lot of volatility.

We continue to assume that the trading range will eventually be broken to the downside, as the fundamental backdrop is not conducive to higher stock prices (note here that in debt-deleveraging cycles, the stock market ceases to work as a leading indicator most of the time – instead it becomes a coincident indicator of economic activity).

On the other hand, we acknowledge that there are a number of signals from other markets that suggest that the backdrop has become more bullish. This is especially the strength in copper and the recent break-down of the gold-silver ratio below its uptrend line. However, both trends appear stretched as well in the short term.

Lastly, the intermediate term outlook for stocks continues to be clouded by the fact that institutional investors are extremely complacent. The equity mutual fund cash-to-assets ratio has fallen back to an all time low of 3.4% in July, and although past experience has shown that the market can sometimes sustain additional short term gains when this ratio falls to extremely low levels, the medium term trend invariably turns down, often inflicting great damage.

For instance the ratio's low of the 1990's bubble was reached in March of 2000 at 4.4%, after which the SPX declined by 51% over the next two years. Likewise, when the ratio first fell below 4% in 2007, the market managed to reach a marginal new high in October, but then declined by 58% over the ensuing 18 months.

On to the charts …

 


 

The S&P 500 Index – approaching lateral resistance once again. Should the 1130-1140 zone be broken to the upside, a run to 1180 or perhaps even a retest of the highs of April would become feasible, but this has not happened yet, and it seems more likely to us that lateral resistance will continue to keep the rebound in check – click for higher resolution.

 


 

The AAII bulls percentage and the AAII bull/bear ratio – after the percentage of bulls fell to an extreme low of just above 20%, it has rebounded strongly to 44% in a mere two week's time, bringing the ratio of bulls to bears back to a fairly high 1.38 – click for higher resolution.

 


 

Weekly NAAIM sentiment – this measures sentiment among fund managers and records their average exposure to the market (replies range from 200% short to 200% long – so at plus 48.26% it means their exposure is on average, 48.26% net long). This is not yet extreme. At best it could be termed 'neutral with a bullish slant' – click for higher resolution.

 


 

The Mutual Fund cash to assets ratio, a measure of mutual fund liquidity, has returned to an all time low of 3.4% in July, an extreme first recorded in April of this year. This shows that sentiment among mutual fund managers is extremely complacent and has very negative connotations for the medium term outlook – click for higher resolution.

 


 

Copper continues to act well, but in spite of a recent 'golden cross' between the 50 and 200 day moving averages, a few bearish divergences are now evident. Strength in copper supports strength in the stock market, but said divergences are a heads-up that the recent rally may soon give way to a correction – click for higher resolution.

 


 

The gold-silver ratio – by breaking its uptrend from late 2009, it has also lent support to a stronger stock market. Note however that this recent move is now quite extended and has reached a lateral support level – click for higher resolution.

 



In summary, while the recent run in risk assets may have some life left in the short term, it is getting to the point where once again a short term trend change could easily occur. Should the above mentioned support/resistance levels in the various inter-connected markets give way (note here also that the t-note has now reached short term support), the rally may continue in the short term, but the medium term outlook for stocks remains clouded.

 

Charts by: StockCharts.com, Merrill Lynch Global Research, Decisionpoint.com


 

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

4 Responses to “A brief Market Update, September 14”

  • LG:

    Heinz: The SPY’s move above its 200 Day SMA could be just a lure. The 9/10-13 gap-up put three gaps under the market as measured by the SPY. The 9/10-13 gap-up technically has the look and feel of a exhaustion gap, with the only fly in the soup being the volume. The 200 Week SMA is a more important gage of trend than the 200 DAY SMA. The SPY’s April high tested its 200 Week SMA and rolled over.

    Highs are in for the March 2009 counter trend rally. IMO.

  • paragshah:

    The real-side of the global economy is also recovering. In the first quarter of 2010, global industrial production was expanding at an 11 percent annualized pace, while merchandise trade, was growing even more briskly (20 percent annualized pace). Still the level of industrial production remains 10 percent or more below potential in many developing countries and unemployment is high.
    Global economic update

  • 3.14159265rite:

    Soooo…. you’re suggesting that some backup cash could be advantageous to support held assets.
    These are fund MANAGERS!

    • It is best seen as a measure of fund manager sentiment. The less cash they hold, the more complacent or convinced of a bullish trend they are. And yes, the fact that their cash reserve is so low also implies that there will be less money to support the market if it falls. In fact, it suggests that selling pressure could be intensified due to redemptions (which usually increase when the market falls), as mutual fund managers will then be forced to raise cash by selling stocks.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How the Fed Robs You of Your Life
      Fiat Currency Rankings - From Bad to Worse Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind. But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.   This is what “monetary stability in the Fed-administered fiat money regime looks like: in the year the Fed was...
  • Wealth Consumption vs. Growth - Precious Metals Supply and Demand
      GDP – A Poor Measure of “Growth” Last week the prices of the metals rose $35 and $0.82. But, then, the price of a basket of the 500 biggest stocks rose 62. The price of a barrel of oil rose $1.63. Even the euro went up a smidgen. One thing that did not go up was bitcoin. Another was the much-hated asset in the longest bull market. We refer to the US Treasury.   BofA Merrill Lynch high yield master II option-adjusted spread: on Dec. 23 it tightened to the  lowest level...
  • Geopolitical Shocks and Financial Markets
      Involuntary Early Retirement of a Middle Eastern General The procession of news through the week – namely that chronicling the aftermath of the targeted drone strike and killing of Iranian General Qasem Soleimani – advanced with an agreeable flow.  The reports at the start of the week were that Orange Man Bad had spun up a Middle Eastern mob of whirling dervishes beyond recall. World War III was imminent.   The recently expired general, when he was still among the quick...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!