IN LIKE A LION:

Usually one would expect up markets at the first part of a month when IRA contributions, Income Tax refunds, etc. flow in. Although most of the Sentiment Indicators have been boringly regressing to the mean, reflecting the steady, albeit rising, Trading Range we've been in below the 2000 all time highs on the Dow 30, a couple of longer term ones have appeared on my radar: the Bullish Per Cent, now at 67, usually falls materially after a top, as does the A/D based McClellan Summation Index, now at a high 665. Funnily enough, the NYSE Adv vs. Decls were dead even last week at 1751 to 1753, although that closed-end fund-ridden entity had 508 New Highs vs. only 71 New Lows.
But before this semi-annual "Bull" period is done there is hope for a rally with the Investors' Intelligence surveys starting to look oversold as it contracts like the Bollinger Bands, hopefully even inverting - it is now 42.6 Bulls to 30.8 with the AAII similar.
Another Bearish extreme is the Nasdaq to NYSE Volume, critically high at 153 (speculative). Recently I've been keeping track of the SPX traders' commitment but so far haven't enough sample data to find it revelatory or consistently reliable.
Only a couple of signals made major percentage moves, to the Bullish camp, they being the Barron's Panic/Euphoria Index, rising from the depths of -0.66 to -0.51; likewise, the Public shorting vis a vis Specialists, fell off from 5.97 to 4.16, nearly a third. These seem to echo the increased volatility recently imposed by the Hedge Fund crew, trying to make money after a dismal '05.

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IN LIKE A LION:

O Really! A Rally?:

With most of the Sentiment Indicators still braindead, echoing an upward bias to a Trading Range since early November (SPX in the 1200s; NAZ in the 2200s), we have to fall back on market momentum - which currently seems strong. At least until we end the month and the first 4 days of March.
New Highs to New Lows on the NYSE were more than 10:1, and the Panic/Euphoria Index is at a low -.66, signaling positive action. Although Volume could be stronger, recent action of Financials, large cap Techs and Industrials bode well for market strength (even absent oil and gold/metals) - at least as long as IRA and income tax money holds out.
The distant clouds of sub-prime mortgage rate hikes are threatening, as are the McClellan Summation loftiness and length of the current rally from October. Otherwise little change has occurred as Indicators have reverted to the mean.

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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O Really! A Rally?:

VOLUME SPEAKS VOLUMES:

One of the more reliable Sentiment Indicators I've found, over the last four years, is the IBD's NYSE to Nasdaq Volume statistic - the ratio compares speculative trading relative to stodgier Blue Chips, even though the smaller caps have outperformed for all of this century.
Looking at almost all of the steep selloffs, they were presaged by a high number - usually 120 to 160 in favor of the OTC volume. And the 1-year and 5-year highs occurred almost to the day, as January 11 of this year (as well as Feb.2) marked a short term top, and, respectively, July 1 of '02 preceded a 1,000 point drop, albeit several weeks after the ultimate top. Looking at lesser tops in '04 and '05 confirmed this signal.
Having said that, the only other Indicators that are not benignly mid-range are Bullish: the Barron's Panic/Euphoria ratio at -.63, Public to Specialist shorting near all time highs at 5.67; and the Nova to Ursa Rydex fund ratio back into the teens.
Let momentum (and tight stops) be your guide until this clears up.

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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VOLUME SPEAKS VOLUMES:

IS OIL "TANKING"?:

Upon observing many lists of stocks by Indices, Sectors or other screens, it is apparent that program trading by Institutions and Hedge Funds is currently moving the markets, mostly down. Every stock on each list is down equally, usually fractionally, so there is no need to consult the stock fundamentals for their weakness. The meteoric rise of Oil, Gold and other precious and Industrial metals, coupled with the incessant rising of interest rates seem to have finally taken their toll on Liquidity. Whether this profit-taking is a Force Majuere or just a corrective bump in the upward road is not known at this time.
Adding to the Bullish view is the Odd-lot shorting which has doubled from a year ago, and continues to increase, in both sales and dollars. The VIX hasn't yet shown much increase, although with hedgers not making much in profits last year, we can expect more Volatility this year - also, in two weeks, trading begins in Options on the VIX Index.Both the CBOE Equity put/call and ISE call/put ratios remain high, in conflict with each other, therefore of less predictive value at this time.
As for most other indicators, such as newsletter surveys and Bullish per cent, last week's whipsaw caused little change in their regression to the mean from January's hot rally.
Finally, Michael Santoli, Barron's top columnist, comments on the Smith Barney Panic/ Euphoria Index, which is a Master Index similar to, and included in, my toolkit, and he discusses some of the components, pro and con, and whether it should be called "Panic" when it resides so long in that region (almost a year). Rather "Caution", sort of like Level Orange, might be more fitting.
Otherwise, tread carefully, as the jury is still out except for contrasting Volatility and one heck of a bottom in October, if we follow decades of the 4-year Presidential, or Kinchen cycle.

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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IS OIL "TANKING"?:

GROUNDHOG DAY:

Punxsutawney Phil seems to be saying "No Bull Market for a few more weeks" as most Sentiment Indicators just regress to the mean, backing off of the Bearish signals cast recently, resulting in the January-end profit-taking. The current 3-month Trading Range shows little intention of climbing higher, even in this friendly semi-annual timeframe.
Whether this CAUSE consolidation is a Re-Accumulation (pointing higher) or Distribution (forecasting lower) is not evident by either the Bullish per cent (still in a toppy area) or the McClellan Summation, which almost always descends after peaking at its current level. An occasional hiccup does occur about as frequently as a 3-star movie on the Lifetime Channel.
There were a couple of quixotic statistics, however, last week: the AAII Bull/Bear postcard numbers have been jumping wildly lately, actually inverting (Bullish) before last week's selloff; and during said selloff, the weekly NYSE new high/new low figures were 602 vs. 84, respectively. One other change - the IBD Mutual Fund Cash dropped to a new recent low of 4.4% going back to December.
Last November the McClellans called for a cycle low in February - I cetainly hope they are right!

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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GROUNDHOG DAY:

AS JANUARY GOES ...:

So goes the year, as the saying goes; helped, of course, by the fact that as in the Heisenberg Principle, an UP January is INCLUDED in that year. Still, with 1 day to go, the DJIA is up 200 points from the 2005 close on outstanding breadth going back to October.
Unfortunately we have been making lower lows since December - a Bearish Megaphone formation. Although we have a diverse mix of Sentiment Indicators, the outlook appears to intimate short term upthrust with clouds overhanging.
First, the good news this week, for Bulls: the AAII Bull/Bear survey ratio inverted again, with Bears at 33%, Bulls at 30. This worked OK last January 6 (for a week) but better on Oct.14 when this whole Bull got going. The problem seems to be the whipsawing in this number - Bulls from 29 to 59 to 30 this month. Also positive is the NYSE Specialist to Public shorting, near its high at 5.47.
Longer term Bearish consists of a 198 ISEE call/put ratio and 72% of stocks on BUY signals (Bullish per cent), and the McClellan Summation at 731, a toppy, overbought area. All the rest seem to be in a benign reversion to the mean as we await a new Fed Head and Bush's SOTU.

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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AS JANUARY GOES ...:

AFTER THE FALL:

Despite the volatile slide of last week, with the options markets recording the most volume ever in over 30 years, both Thursday and again on Friday, Sentiment Indicators seem quite benign; partly because some, like the Surveys which are reported on Wednesday, are a bit behind.
They did prove helpful, however, in predicting the toppiness the last 2 or 3 weeks! Ignoring reasons for the crashette that the talking heads explain away to answer-seekers - Iran's nuclear scare, earnings and projection disappointments, rising oil and gold, etc., I would posit that the main culprits for this shakeout were the above-mentioned option expiration on the 3rd Friday, some repositioning and profit-taking by hedge funds ( their net long position has been in the top 2% of the '00-'06 period); we've also bounced down off the seemingly impenetrable 11,000 Dow 30 level for the 5th time since '00 - on failed rallies almost every year.
The foremost reason was, of course, the recent high complacency exhibited by several Sentiment Indicators, such as Bullish Percent (in the low 70s), Nasdaq to NYSE Volume, the Panic/Euphoria Index, I.I. and Market Vane Bulls at 60 and 73 respectively, with the AAII close behind at 59, and lastly the McClellan Oscillator (ratio-adjusted) and Summation both at toppy levels.
As I began the column, not much has changed other than coming off the highs - possibly next week may give a better outlook: the VIX jumped to 14 from 11, the McClellan Osc. went negative to -13, and Public to Specialist shorts dropped materially, but not dramatically.
Finally, I do worry about the massive bullishness on oil stocks ( the next Bubble?), at least short term - the next victim to be taken out and shot.

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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AFTER THE FALL: