Monday, December 27, 2004


As I update my many Sentiment Indicators this Monday after Christmas weekend, most of which are extremely overcooked, I watch the DJIA slip from +20 to -20, and wonder how many hours/days are left in this ballistic rally before a correction of some type.
CBOE Equity put/call:
58VIX: recent record of complacency at 11.2
ISEE electronic exchange: back to a high of 227 a/o Friday (today's is 337!)
A/D ratio screaming with the McClellan Summation overbought
New Highs to Lows: 25 to 1
Market surveys, U of M and UBS numbers at highs in Bullish confidence
Nasdaq Volume to NYSE: 150
Bullish %: 78, the 3rd highest level in years
Finally, Specialists' shorting (late figures) rising steadily

As helpful as many Sentiment Indicators are, one of the problems with them, aside from their inexactness, is which are heuristic myths perpetuated by the media due to a small sampling, and which indeed are seasonal or cyclical events. For example, since the DJIA started before 1900 there has never been a down 5th year, in fact major rallies have occurred in every one. And though the average year was up 26%, the odds of this year hitting exactly 26% are way low. Even with small sampling, a 100% accuracy has to be at least considered with other analysis. Other larger samplings of calendar data include: over 50 years, only 5 January effects have not held up - where January's market action dictates the whole year; over 60 years December has been the best up month at +1.8% AVERAGE; over the past 30 years the last week of the year has AVERAGED +1%; the AVERAGE Bull market lasts 2.6 years, and we have gone 2.2 years since August 2002.

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