ELLIOTT "WAIVE":

It is not uncommon for the first impulse wave of a new bull move to retrace sharply as much as 90% of Wave I. However, if it breaks the recent low, which is also near the high of 1998, all bets are off.
Nonetheless, this Bear Rally before more downside hasn't exhausted itself, in percentage points or in time, according to the dozen or so similar rallies over decades of Bear markets. Many of the indicators have backed off very oversold areas, leading to end-of-month profittaking. The McClellan Oscillator shot up through the 50 level to near 70 (overbought) before settling down for the week at +37; and its concomitant Summation broke up into negative triple-digit territory from over -1,000; public to specialist shorting and NYSE short interest hit new highs. Both ETFs and traditional mutual funds saw Billions in redemptions; newsletter surveys improved, but still remain inverted (bullish FOR the market).
This week I have deleted the indicator of most legal insider sales/buys by sector, but have discerned that the overall rate of this selling in the 10 sectors is quite revealing: looking at the tops and bottoms over the past 2 years (more sampling would be preferable), 6 of the 7 bottoms saw overall ratios at between 4 and 8 to 1 (with one at 12:1) - as for the tops, 8 of 9 were between 18 and 43 to 1, with one outlier at 5:1, although that was a declining top. This unusual statistic bears watching.
Here are the numbers:

MktSentiment. 7/25/2008 Prev. Week.....5Yr.HI......LOW

DJIA ………. 11370……….11496………..14093............7286
Nasdaq………. 2310…………2282…………2810.............1114
S&P500…….. 1257…………1260………….1561………..776
CBOE Eq. put/call …72……………79……………..92-1/08….....46-1/03

VIX ………. 22.9………….24.0…….…….44.. 9/02 bu..10.0-7/05 br

McClellan Osc……….37…………15……………91-5/04 br...(-81)-5/04bu
McClelSum……….…-967………-1187…………..1568-6/03.......-917

Newsletter Surveys:
Inv.Intel -Bull:…..…29.2………..27.8……….…12/04br......35-6/06bu
Bear:………… 49.4……….48.9…..………… 38.2-3/03.......16-6/03

AAII-Bull/Bear ……35.8/44…….25.0/58.1……..n/a n/a
IBD: Short Interest- 13.5………..13.4…………15.0………. 4.0
Public/NYSE Spec.-…21.9nh……18.45…….….21.9bl…………..1.0br
Bullish%- …………42………..34buy…….…88 -2/04br.....19bu
*Insider corporate sellers.20:1…….8:1………..97………….4

SENTIMENT RULES ! TW3: STOCKS,OIL,$

The secret to using Sentiment or Contrary Opinion to track the market is to allow that the public is usually right all the way up or down to the extremes. In the case of TW3 - That Was The Week That Was - the perfect storm of various indicators, both sentiment and breadth, was conclusive in its change of direction call. How far it extends depends, of course, on the balance of supply vs. demand - one way is to watch the IBD (Investor's Business Daily) signal of a followup day, 4 or so days later to confirm a material rally. And, of course, the amount of Volume on both up and down days.
Last week's indicators backed off for the most part from the sometime record extremes. The Bullish per cent went on a Buy signal of a 3 Pt.& Figure boxes (6%) rally. Although naked shorts is the topic du jour, total record shorting has to be a consideration, even though it is mostly used by institutions for hedging. 150 of the most heavily shorted stocks in the S&P1500 rose 15% while the least shorted rose only 2%.
A large part of potential supply includes the $3.5T that has gone into Money Market Funds, which not only yield 1/2 of the Inflation rate, they are not even insured by FDIC. And the New Low/ New High ratio last week was cathartic at 46 vs 1361.

Here are last week's stats:

MktSentiment. 7/18/2008 Prev. Week.....5Yr.HI......LOW

DJIA ………. 11496……….11100………..14093............7286
Nasdaq………. 2282…………2239…………2810.............1114
S&P500…….. 1260…………1239………….1561………..776
CBOE Eq. put/call …79……………85……………..92-1/08….....46-1/03

VIX ………. 24.0………….27.5…….…….44.. 9/02 bu..10.0-7/05 br

McClellan Osc……….15………….-44……………91-5/04 br...(-81)-5/04bu
McClelSum……….…-1187……..-1060…………..1568-6/03.......-917

Newsletter Surveys:
Inv.Intel -Bull:…..…27.8……….….27.6……….…12/04br......35-6/06bu
Bear:………… 48.9……..…..47.3…..………… 38.2-3/03.......16-6/03

AAII-Bull/Bear ……25.0/58.1……...22.2/55.2……..n/a n/a
IBD: Short Interest- 13.4………….14.1…………15.0………. 4.0
Public/NYSE Spec.-…18.45……….18.4…….….21bl…………..1.0br
Bullish%- ………….34buy……..27…….…88 -2/04br.....19bu
*Insider corporate sellers.8:1………4:1………..97…………..4
Sectors: Most Buyers: Finance, Tech
Most Sellers: Healthcare, Tech

THE BEAR AND THE BLACK SWAN:

It is times like these that make all the Sentiment work worth it. As much as I prefer to gather and record the data, leaving predictions to fools and deceivers, if we do not get a material rally out of these extreme oversold readings within days, I'm going to hang it up and go fishing. I do recommend using these indicators first as a cautionary tools, then as a speculative one until proven correct.
Here are some examples: the CBOE put/call is at 85 (still off the 95 multiyear high); the VIX at 27.5 is not quite breaking through the 30 level we saw in 4 previous rallies the past year; NYSE new lows are 40 to 1 (Nasdaq 20:1); the McClellan Oscillator is off its -50 buy signal of the past 3 weeks, but the Summation broke -1,000, a new low.
Not only are the AAII and Inv.Intell surveys inverted, with more Bears than Bulls, but extremely so - more than 30 and 20%, respectively. Legal insider selling is at a new low of 4:1 (with kids going away to college next month??); Bullish per cent could also be lower - 27 is a bit above the 19 low.
With $38B going into Money Market Funds last week, this could fuel a rally, as well as the foreign money that has been huge in redemptions - oil-exporting countries make $2.5T a year in revenues. As T Boone says, we're funding both sides of the War!
Finally, record short interest on the NYSE and IBD's ratio, as well as a spike in SDS volume last week (the S&P 500 double short ETF).
Here are the rest of the numbers:
MktSentiment. 7/11/2008 Prev. Week.....5Yr.HI......LOW

DJIA ………. 11100……….11288………..14093............7286
Nasdaq………. 2239…………2245…………2810.............1114
S&P500…….. 1239…………1262………….1561………..776
CBOE Eq. put/call …85……………77……………..92-1/08….....46-1/03

VIX ………. 27.5…………24.78…….…….44.. 9/02 bu..10.0-7/05 br

McClellan Osc……….-44…………-75……………91-5/04 br...(-81)-5/04bu
McClelSum……….…-1060……….-800…………..1568-6/03.......-917

Newsletter Surveys:
Inv.Intel -Bull:…..…27.6………..31.9……….…12/04br......35-6/06bu
Bear:………… 47.3……….44.7………… 38.2-3/03.......16-6/03

AAII-Bull/Bear ……22.2/55.2……23.9/52.1……..n/a n/a
IBD: Short Interest- 14.1…………13.46…………15.0………. 4.0
Public/NYSE Spec.-…18.4……….17…….….21bl…………..1.0br
Bullish%- ………….27………28…….…88 -2/04br.....19bu
*Insider corporate sellers.4:1…….7:1………..97…………..5
Sectors: Most Buyers: Industrials (1/2 the total)
Most Sellers: Energy

SELL IN MAY, SWOON IN JUNE...:

In the classic Stock Traders' Almanac the Hirsches posit that the the last day of the month and the first 4 are the best days to trade the market, with the 1st day alone besting the rest of the month combined! In my ongoing study of 3+ years, that still holds true, but the 9 through 11 days are outperforming the early 5 days.
Midway through today, the fourth trading day of July, the S&P500 is down 25 pts., after today's huge reversal, but the 1st day was up 4 pts., about its average.
Sentiment indicators are way oversold across the board, after the cascading May through today period:
Extremes include both the McClellan Oscillator at -75 and its cumulative Summation Index at a rare -800; both newsletter surveys I follow, the AAII and Invest.Intell. ,are inverted with bears outnumbering bulls, also a rarity.
Not quite as extended are the VIX at near 25 and the Bullish %, which at 28 needs to go to 16 to match previous bottoms. NYSE weekly NLs/NHs were 10:1, and the Nasdaq was 1:20!
Meanwhile, insider selling and shorting are off their extremes.
Here are the numbers:
MktSentiment. 7/4/2008 Prev. Week.....5Yr.HI......LOW

DJIA ………. 11288……….11346………..14093............7286
Nasdaq………. 2245…………2315…………2810.............1114
S&P500…….. 1262…………1278…………1561………..776
CBOE Eq. put/call …77……………73……………..92-1/08….....46-1/03

VIX ………. 24.78………..23.4…….…….44.. 9/02 bu..10.0-7/05 br

McClellan Osc……….-75…………..-70……………91-5/04 br...(-81)-5/04bu
McClelSum……….…-800…………-521…………..1568-6/03.......-917

Newsletter Surveys:
Inv.Intel -Bull:…..…31.9…………33.7……….…12/04br......35-6/06bu
Bear:………… 44.7………..39.3………… 38.2-3/03.......16-6/03

AAII-Bull/Bear ……23.9/52.1……31.3/52.3……..n/a n/a
IBD: Short Interest- 13.46……….13.7…………15.0………. 4.0
Public/NYSE Spec.-…17…………17.4…….….21bl…………..1.0br
Bullish%- ………….28………..33…….…88 -2/04br.....19bu
*Insider corporate sellers.7:1……8:1………..97…………..5
Sectors: Most Buyers: Finance Most Sellers: Tech