Monday, September 22, 2008

I'M EVEN, I'M LEAVIN':

This market is difficult enough to analyze/trade without the Gov't "necessarily" stepping in to complicate things. This said, it is doubtful that Sentiment can correctly reflect or predict short term direction when these Deus ex Machina backstops intervene.
First, some salient observations: in June, after a sharp decline, the Pakistani stock market banned shortselling; there was a huge rally, then the decline resumed about an equal distance from the prior leg. How long this "time out" lasts is moot, but, as Louise Yamada points out, more downside beckons. My Point & Figure counts show a descent to 9500 or, breaking that, 8600 DJIA.
In addition to today's large decline (even sans short sellers), foreigners have been repatriating funds from long, short Treasuries and GSEs in force, even since the summer months. Money market funds (before Hank guaranteed them) lost a record $144B vs. a previous week's Inflow of $44B to safety(?). Ironically, the person who invented the first MMF was also the first recently to close it, besotten with Lehman paper.
Anyway, it's comforting to know that the U.S. financial system is now in the hands of the Federal Government that brought us the Postal System, Welfare, Social Security and Medicare.
Despite the massive volatility, the numbers are quite benign - the indices barely changed week over week; put/call went from 86 to 83, although the VIX shot up over 40, closing at 32- so far this year each toppy spike has been Bullish.
Public shorts (until the halt) rose to 18:1 over Specialists, who should be able to short; the SDS (SPX short ETF) weekly Volume was a record 243B . Finally, the surveys, which missed much of the action by reporting on Tuesday, are still Bullishly inverted, with Bears dominating.

MktSentiment. 9/19/2008 Prev. Week.....5Yr.HI......LOW

DJIA ………. 11388……….11421………..14093............7286
Nasdaq………. 2273…………2261…………2810.............1114
S&P500…….. 1255…………1251………….1561………..776
CBOE Eq. put/call …83……………86……………..92-1/08….....46-1/03

VIX ………. 32.0…………25.6…….…….44… 9/02 bull..10.0-7/05 bear

McClellan Osc………4….………-6……………..91 -5 /04 bear...(-81)-5/04bull
McClelSum……….…-451………-237……..…....1568-6/03.......-1187
Newsletter Surveys:
Inv.Intel -Bull:…..…37.9………..38.2……….…63 (12/04bear)......35-6/06bull
Bear:………… 43.7……….41.6…..………… 38.2-3/03.......16-6/03

AAII-Bull/Bear ……27.2/54.4……29.3/54.9……..n/a n/a
Public/NYSE Spec.-…18.5……….15.3…….……18.5
Bullish%- ………53buy…………..46………….…88 -2/04bear.....19bull
*Insider corporate sellers.20:1……..15:1………..97………….4
Mutual Fund Inflows..(3.9B)………(6.5B)……
ETF InflowsL………..8.3B………..7B……
Money Market Inflows: (144B)…….44.4B

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance


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