DECENT OR DESCENT?:

Although several Sentiment Indicators are signalling a long-anticipated decline to the recent rally, it probably won't start immediately. What with the Santa Claus rally (last week of the year), lots of money from bonuses and other year-end contributions looking for a home -some of it mandated- plus any January effect out there, it could be days or weeks before we see demand weaken.
Most eye-catching is the Citicorp/Smith Barney Panic/Euphoria Index found in Barron's. Last week it zoomed up to -.33, just below the waterline out of the Panic zone. Rejiggered once already, it probably needs another adjustment, since it's spent more time under water than Shamu the Whale. Still, it has been a fairly reliable sign, the last time near -.30 was in May; before that the March period and the summer of '05, when it first appeared - all market tops, except for one backfire. Market bottoms at -0.70 have also been quite reliable.
Other signs of overextension include the McClellan Summation Index coming down off a high 1,000 level, although the Oscillator at -44 is near an oversold state. Bullish per cent, the number of stocks on Buy signals, is also at a lofty level.
Finally, the newsletter survey are mixed, with the Investors' Intelligence spread wide at 58.8 Bulls and only 20.6 Bears; meanwhile, the AAII again inverted, with more Bears than Bulls, usually a positive sign for stocks. Mutual funds have had outflows since November, usually a Bullish sign as they again miss out.

Here are the numbers:

Mktsentiment. 12/22/2006......5Yr.HI........ LOW

DJIA ………. 12343...............12342...........7286
Nasdaq………. 2401...................2460............1114
S&P500…….. 1410.................1427............776
CBOE Equity put/call 59.................87-5/04........46-1/03

VIX ………. 11.36...............44 9/02........10.3-7/05

ISEE-call/put ……. 102................299-12/04.......82-4/02
(>200/Bearish)..

McClel Osc.(+75/-100)……-44............91-5/04.........(81)-5/04
McClelSum.(+750/-1153nh) 922......1568-6/03.......(726)-5/04

Newsletter Surveys:
Inv.Intel -Bull:…..…. ..58.8.................62.9-12/04......35-6/06
Bear:………… 20.6..................38.2-3/03.......16-6/03

AAII-Bull/Bear ……. 39.1/42.5.....n/a n/a
MarketVane Bulls…. 72................ 73..............24

Barron's Panic/
Euphoric Master Idx…. -0.33........-0.24 4/06.....-0.75 11/05

Bullish%- ………77........................88 -2/04...... 46-8/04

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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DECENT OR DESCENT?:

THE END IS NEAR:

As the end of 2006 approaches there is another "end" that begs paying
attention to: Closed-End Funds, specifically municipal bond funds.
As Thomas Hershfeld, the guru of CEFs, discovered years ago, many of them
selloff at year end. Why this is could be that some states, such as
Florida, Washington, Texas, that have no Income tax but rather Asset
tax, drive investors to sell their funds into Money Market Funds at
yearend, then rebuy the tax-frees in Jan/Feb.
By examining charts of, for example, RFA, MFL,MFT, MYF, even California's
MUC,one notices sharp downmoves. What is nice is that unlike stocks they
are unlikely to belly up, and they pay anywhere from 4-6% monthly
tax-free while you wait. You can then decide either to take profits or receive the dividends until they weaken, which they do again in the April/May period and also the June/July span (see charts for entry/exit).
Incidentally, Hershfeld will be on Nightly Business Report this Friday, and guess what he'll be talking about?
Although still Bullishly under water, the longer term master indicator from Barron's - Citi's Panic/Euphoria Index- at -0.48 is still the highest it's been since last July's V-spike period and May's cascade.Although the ISEE call/put ratio closed the week at a benign 136, today's
post-expiration range has it screaming up past the 200/bearish range to 220, intraday, a possible short term anomaly.Both the McClellan Summation and Bullish Per Cent remain Intermediate overbought, although the Oscillator is just in negative territory. Finally, the Mutual Fund outflows were huge - $9B, although $10B came back into ETFs (per AMG Data); and the Bears in the AAII dropped precipitously from 41.6% to 20.6% over the week.

Here are the numbers:

Mktsentiment. 12/15/2006......5Yr.HI........ LOW
DJIA ............... 12445...........12342...........7286
Nasdaq………. 2457............2460............1114
S&P500…….. 1427............1409............776
CBOE Equity
put/call....... 60.............87-5/04........46-1/03
VIX ………. 10.........44 9/02........10.3-7/05
ISEE-call/put ……. 136...........299-12/04.......82-4/02(
>200/Bearish)
McClel Osc.(+75/-100)……-12...........91-5/04.........(81)-5/04
McClelSum.(+750/-1153nh) 1081.....1568-6/03.......(726)-5/04
Newsletter Surveys:
Inv.Intel -Bull:…..…..59.6...........62.9-12/04......35-6/06
Bear:………… 21.3.........38.2-3/03.......16-6/03
AAII-Bull/Bear ……. 41.3/20.6.....n/a n/a
MarketVane Bulls…. 71......... 73..............24
Barron's Panic/Euphoric Master Idx…. -0.48........-0.24 4/06.....-0.75 11/05
Bullish%- ………79...............88 -2/04...... 46-8/04

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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THE END IS NEAR:

IF PAST IS PROLOGUE:

To my knowledge, since WWII only one time has there been a 4-year
Presidential cycle that until this year did not sell off in a vicious
V-Spike, and that was in 1986. It did, however, make up for its delay in
1987 with a record point selloff after James Baker , then Sec'y of State
(and now a name currently in the news), went to Germany and demanded that
they revive their economy or the U.S.would "let the Dollar slide!".
This week BOTH Fed Head Bernanke and U.S.Treasury chief Paulson are on a
mission to China to discuss China's economy, fair trade, and the Dollar-pegged Yuan (too bad Condoleeza isn't going (it would be a first - sending "rice" to China). Considering we've had 100 trading days without any major correction, this Sea of Tranquility must be getting a bit tired, even though we are headed for the Conventional Wisdom's period of a Santa Claus rally and possible January Effect (although there may be no losing stocks to sell for tax purposes this year!).
If a NYSE new high/low ratio of 936 to 21 isn't indicative of a mania
(even though many of these are foreign ADSs, preferred and ETFs), then a
rise in UBS Investor Optimism from 79 to 93 and a rash of corporate Insider
Selling might tip us off to impending weakness.
The McClellan ratio-adjusted (for CEFs, etc.) Summation Index is also sky high at an
overbought 1127; stock charts Bullish Per Cent is also at an elevated
78%, and the Investors' Intelligence surveys of 100 advisory letters has
a Bullish reading just under 60, with 62 being the 5-year high.
Suspiciously, the AAII ratio is Bullishly inverted, an event as rare as a
three-star movie on the Lifetime channel.

Here, then, is this week's grid:
Mktsentiment. 12/08/2006......5Yr.HI........ LOW
DJIA 12307...........11577...........7286
Nasdaq 2437............2243............1114
S&P500 1409............1325............776
CBOE Equity put/call 60.............87-5/04........46-1/03
VIX 12.........44 9/02........10.3-7/05
ISEE-call/put 148...........299-12/04.......82-4/02
(>200/Bearish)
McClel Osc.(+75/-100) -6...............91-5/04.........(81)-5/04
McClelSum.(+750/-1153nh) 1153...........1568-6/03.......(726)-5/04
Newsletter Surveys:
Inv.Intel -Bull:62/28 ..59.8...........62.9-12/04......35-6/06
Bear:43.2/16.1--5yrs 23.9.........38.2-3/03.......16-6/03
AAII-Bull/Bear 38.9/41.6.....n/a n/a
MarketVane Bulls 73......... 73..............24
Barron's Panic/Euphoric
Master Idx -0.48........-0.24 4/06.....-0.75 11/05
Bullish%- 78...............88 -2/04...... 46-8/04

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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IF PAST IS PROLOGUE:

"JANUS" EFFECT:

Janus is the two-faced god for which January is named; since Jeff Hirsch, scion of the late Yale Hirsch and proprietor of the Stock Traders' Almanac, has announced that the January effect of smaller stocks selling off by funds (only to be bought back later) is coming early this year. He figures mid-December. Maybe this dualism is why we have such a bifurcation in Sentiment signals lately:
Investors' Intelligence survey of 100 advisory letters, reported by Michael Burke's Chartcraft each week, shows an elevated Bullish number of 57.5% and a lowly 22.3% from Bears; on the other hand, the AAII - gleaned from postcards sent out each week, shows a very rare inversion of Bulls/Bears at 40/47, respectively - a Bullish signal.
Public to Specialist shorting has dropped dramatically from 7.26 in Sept. to 4.0 (Bearish), but short interest has declined (down 5.5% on the Nasdaq from October).
The CBOE Equity put/call ratio is at a high level of 61, yet frenetic liquidity has driven the McClellan Summation to recent record high breadth of 1056, the same with the Bullish per cent number at 78 (number of stocks on a Buy signal), a top only superceded once, in 2003.
Likewise, the VIX posted a very rare recent sub-10 number, while the Barron's/ Citicorp Panic/Euphoria master Indicator is still cautiously rising, as is the Rydex Nova/Ursa ratio.
Until these dichotomies are resolved, market direction is uncertain, even with the best time of the calendar year just ahead. Here is the grid of Sentiment Indicators:

Mktsentiment. 12/01/2006......5Yr.HI........ LOW

DJIA 12194...........11577...........7286
Nasdaq 2413............2243............1114
S&P500 1396............1325............776
CBOE Equity put/call 54.............87-5/04........46-1/03

VIX 11.6.........44 9/02........10.3-7/05

ISEE-call/put 121...........299-12/04.......82-4/02
(>200/Bearish)

McClel Osc.(+75/-100) 8...............91-5/04.........(81)-5/04
McClelSum.(+750/-1056nh) 1056...........1568-6/03.......(726)-5/04

Newsletter Surveys:
Inv.Intel -Bull:62/28 ..57.5...........62.9-12/04......35-6/06
Bear:43.2/16.1--5yrs 22.3.........38.2-3/03.......16-6/03

AAII-Bull/Bear 40.29/47.5.....n/a n/a
MarketVane Bulls 70......... 73..............24

Barron's Panic/
Euphoric Master Idx -0.52........-0.24 4/06.....-0.75 11/05

Bullish%- 78...............88 -2/04...... 46-8/04

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" EFFECT: