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:

JANUS, THE TWO-FACED GOD:

January, named for Janus, can't make up its mind which way to direct the stock market. First it charges out of the chute in record numbers (with new pension, bonus, IRA, etc. money fueling it) as shown by over 10 to 1 new highs for 2 weeks, and cumulative A/D breadth also screaming up. Then everything all of a sudden looks toppy: the McClellan Summation Index is over its normal resistance range (although it's been up to 1500 before) at 686; newsletter surveys are rampantly bullish at 56 for the I.I., 59 bulls (up from 29 last week) vs 19 bears (down from 40) on the AAII; Market Vane hit a record 73 bulls!Barron's chart of Smith/Barney's Panic - Euphoria Index is still slightly under water (-0.30) at -0.35 but fading fast. It's right at the level of the last 3 previous tops, as is the Bullish Per Cent at 73 ( % of stocks on Buy signals). Finally, Barron's reports that hedge fund managers are more long now than 98% of the last 5 years; also in record numbers - Nasdaq long futures.Speaking of Barron's, they grudgingly put out last year's Roundtable results of stock picks by their 12 dwarfs (gurus). As I said in my last Marina Times column: "He who cuts his own wood is twice warmed", meaning one should do their own research on stocks, as borne out by the results! Only 1 of the 12, Meryl Witmer was successful in their picks - 4 for 4, up double-digits. Those who shorted got killed! So much for expert advice.

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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JANUS, THE TWO-FACED GOD:

HO! HO! HO!:

Technically the Santa Claus rally, like USC's football team, broke its string of successive (8 of 8) years of rallying higher in '05 - the last 4 days and first 2 of the next year. In the spirit of the record, however, it was only 3 points lower ( 10,880 vs. the 10,883 close Dec.23), the Nasdaq and S&P 500 did close higher, and that was one heck of a rally, albeit a few days late, to a new nearly 5 year highs! Alas, the bigger perfect record of never a down 5th year over 13 decades bit the dust.
Thanks to nanotechnology and Globalization, a new polling parameter is emerging, as reported by James Surowiecki in his best-seller - The Wisdom Of Crowds. Pooh-poohing the findings of such notables as LeBon (The Crowd), Mackay (...Madness of Crowds), and even Baruch, Thoreau, and Nietsche, he posits convincingly that vast numbers of diverse opinions bring about best results, citing the Iowa Election Market, Britain's Tradesports.com, "Millionaire's" Lifeline, and the Las Vegas oddsmakers who put money where their votes are. We're even starting to see signs in Bush's meeting with prior Sec'ys of Defense (not all "Yes men"), and IBM's polling of 320,000 employes in 175 countries by e-mail for antithetical opinions and suggestions.
This week's Sentiment numbers are also poles apart suggesting, at best, volatility: some Bearish signals ameliorated - ISEE call/put ratio, McClellan Oscillator changing direction from below the zero line, Burke's I.I spread narrowing 8 points, and the Advance/Declines and New Highs/Lows exceptionally strong (nearly 8:1). Most Bullish was the inverted AAII survey with only 29% Bulls and 40% Bears!
However, there are also several toppy Indicators in the mix: Although the McClellan Oscillator changed to positive, it also shot up to its Resistance level of @50, as did the Bullish per cent at 72. There may be some Resistance to breaking through the 11,000 DJIA level this week. Finally, the Nasdaq to NYSE Volume hit a recent, speculative high at 132, and the Public to Specialist shorting fell off appreciably - 5.66 down to 4.37, over 20%.

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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HO! HO! HO!:

BAH! HUMBUG!:

What a year-end , breaking both a decade- and century-long record! The 8 of 8 Santa Claus rallies ended (although we do have the first 2 days of January to make it back); but the big loser was the 5th year of the decade, always with the Dow Jones up at least 10% since the 1880s. Actually the S&P 500 and Nasdaq were up for the year, but they weren't around then. I hope this isn't a harbinger of doom for '06, which usually isn't too hot in the 4-year Kinchin, or Presidential, cycle.
So much for small, anecdotal sampling. The NORC, or National Opinion Research Center, usually demands 1500 polling units to validate a survey, which they throw up on a Bell Curve using 2% Standard Deviations which contains 95% of the results.With last year's lack of Volatility (see the VIX) putting the Dow at the lowest year-over-year change since WWII at .61%, we might expect a Bollinger Band blowoff, up or down. Odd lot short sales are screaming to new records, way more than doubling last year's numbers. Some of these numbers have to be taken with a year-end scrambling grain of salt.Any chartist looking at the year-end massacre would expect more blood in the streets to come. And although there has been some complacency after the fall rally, a few Indicators are flashing extremely Bullish:
At Bullish extremes are the CBOE put/call ratio (61), although the ISE Exchange (Int'l Options) is simultaneously Bearishly over 200 (219); the McClellan Oscillator plunged down through the zero line, to -8 (Bearish), yet the AAII Bulls to Bears is almost dead even (Bullish) at 37 to 36; the Panic/Euphoria Index (a combination of Sentiment Indicators) is Bullish at -.60, the Public to Specialist at 5.66 is just off its highs, while the IBD short interest ratio is climbing higher to levels last seen in March of '05. Finally, the Bullish % and U. of Michigan Confidence are toppy. This dichotomy of signals could bode for high volatility or Trading Range uncertainty.

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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BAH! HUMBUG!: