Monday, September 17, 2012


Far be it for me to try to fall into the trap of timing the stock market, however, I have more confidence that markets behave more irrationally due to Sentiment and human behavior than pure random walking ( although that does exist very short term).

That said, several yellow caution signs appeared after the Bernanke put rally of last week that causes me to be cautious near term. Technically, it appears that a 5% correction would be possible and healthy, with the rally resuming into year end. As mentioned before, the Election year model since 1900 (an average of 28 election cycles) points to a down to flat market if the incumbent is destined to lose.

Here are my concerns: Barron's columnists Michael Santoli and Steven Sears both point to Larry McMillan's put/call ratio levels calling for a correction. Since the QE3 put option Implied Volatility (IV) is lower than it was in 2007, before the financial meltdown. A very tight inverse correlation between the SPX and equity put/call is seen in Barron's looking like last April. 

For several weeks my CEO insider selling ratio has skyrocketed (over buys) as shown below - doubling w/w; in fact, CEOs leaving office is up 25%, possibly avoiding the Fiscal Cliff. Especially healthcare and financials. Both Bernanke and Draghi seem to be desperate: "whatever it takes".

Elsewhere, the NYSE new highs/lows was a huge 722/36 (more than 20:1); speculative Volume (Nasdaq over NYSE) is still high. newsletter surveys were mild, but they come out Tuesday and Wednesday - before the big Fed runup. Finally, both the Bullish % and McClellan Oscillator are flashing warning/toppy signs - even the McClellan Summation aggregate.

Here are the numbers:

9/14/2012 9/7/2012
Indices: DJIA  13593 13306
NAZ  3183 3136

SPX  1465 1437
WklyVolume (Bshs).
NASD/NYSE 8.6/3.6 6.6/2.7
Specul.Ratio hi=bullish 2.39 2.44

Sentiment: put/call-CBOE  56 62
VIX>50-alltmlow=8.8 14.5 14.4
Advance/Dec-NYSE.. 2317/837 2445/678
Weekly Net:
1480 1767
     Cumulative: 143458 141978
Weekly  NYSE hi/low 722/36 520/58
New Hi's/Low's Nasdaq h/l 403/81 293/86
McClellan  Oscillator 63 35
McClellan Sum .+750/-1000 820 616
Newsletter Inv.Intel -Bull:tues 51.1 51
Surveys Bear:-5yrs 25.5 24.5

AAII  -Bull :wed. 36.5 33.1

Bear  33 33.1
COT:Change w/w large/small (net)k 5/5. (2)/3
CEOinsider selling 78:1 34:1
3-box rev Bullish%-  79 74
US equity -ICI Fund Flows 1 wk lag (2.8B)
MMF flows Change in $B 8B (.8B)
MargDebt- top (300M) monthly  277B JULY:
ETF:Eqty/Int'l/Bond  million$$ . 702/264/226 JULY:
2-yr Tsy Yield: Inflation 0.26% 0.26%

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