PARADOX LOST

Last week the Nasdaq Composite hit a record high; the S&P 500 (SPX) nearly did - yet most Sectors - as measured by ETFs- seem to be in a downslide. Today, behind the Greek tragedy, U S markets also sold off, breaking technical Support levels ( 2080 on the SPX), as well as multi-year trendline Support. This does not bode well for the seasonally weak season - JASON- (July, Aug. Sept. Oct. Nov.).
Carl Icahn , no dummy when it comes to investing, having made over $1B on Netflix alone! calls the market "extremely overheated". Also worrisome are the technical indicators: OBV, or collective On Balance Volume and RSI or Relative Strength Index which topped out last year. Although stock Buybacks were fairly strong in Q2, even they failed to move the markets very much.

Sentiment Indicators, however, tell a different story: as shown below, newsletter Bulls increased in both wire house newsletters and Individual (AAII) surveys; CEO insider selling (legal) was way low - single digit, over buyers. Most other Indicators were quite calm and neutral considering the global situation. Stay tuned!!!

  

Date>		6/26/2015	6/19/2015
Indices:	DJIA	17946	18015
	NAZ	5080	5117
	SPX	2101	2109
WklyVolume (Bshs).	naz/ny….	9.2/4.7	9.2/4.8
Specul.Ratio hi=bullish		1.96	1.92
Sentiment:	put/call-CBOE	61	62
VIX>50-alltmlow=8.8		14	14
Advance/Dec-NYSE..		1262/1992	1766/1477
Weekly Net:		-730	289
Cumulative:		165416	166146
Weekly	NYSE hi/low…	312/269	237/241
New Hi's/Low's	Nasdaq h/l	401/149	380/146
McClellan	Oscillator	-19	0
McClellanSum	.+750/-1000	-208	-199
Newsletter	Inv.Intel -Bull	51.6	45.5
Surveys-Tues	Bear:-5yrs	15.4	16.5
Wed.	AAII  -Bull	35.6	25.4
	Bear	21.7	34.3
COT:SPX w/w	large/small (net)k	9k/(8k)	7k/(51k)
COT:gold  comm.hedg	long-short.000	(101k)	(76k)
COT:OIL comm.hedg	long-short.	(335k)	(330k)
US$-WSJ		86.7	85.6
CEOinsider	selling	9:1	24:1
off.&bd b/s.vs.	10% holder b/s	160/50	160/35
3-box rev	Bullish%-	61	62
US equity -ICI	Fund Flows	WeekDelay	(3.5B)
MMF flows	Change in $B	2.7B	(11.1B)
MargDebt- top (300M)	monthly		507B
ETF:mthlyEqty/	Int'l/Bond-$B		1256/519/318
2-yr Tsy Yield: Inflation		0.72%	n/a
TIP (ETF)	Inflation	111.44	112.61

WISDOM OF CROWDS

In his epic book - The Wisdom of Crowds, James Suroweicki avers that masses of people will come up with the right solution to problems (as exhibited in the TV show where a "HELP" line was usually the best resource); however, in the Memoirs of Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, he opines that crowds do exactly the wrong thing at the wrong time - an Contrary Opinion is the best tool for forecasting. So who is right?

Actually, both are! Depending on the timing. As local analyst Harry Domash recently stated at a Money Show talk: The Trend is your Friend until it Bends at the End! In other words, it is at extremes that surprises occur. The current Bull stock market, although not record-setting in lack of corrections or Bear markets, is quite long in the tooth. Per a recent Barron's headline - the SPX has gone 1350 days without even a 10% correction. Prior longer records were 2004-07 and 1990-97 - and we know how that ended up!

Still, there is little evidence that the end is nigh - record margin interest - much higher than the above two periods- could result in a cascading drop, similar to the 1987 "Portfolio Insurance" calamity, where selling begat more selling. Most other Sentiment Indicators are still quite average; and the AAII (Individual Investor) Bulls have dropped below 30% for almost two months- recently 20% and 25%. No complacency here, especially with all the global troubles pending. The Retail investor has been conspicuously absent during this rally from March 2009, with the exception of Index ETFs.

The Nasdaq continues to make new highs, although the Volume dropped last week in relation to the NYSE - the Naz being the more speculative vehicle - possibly due to Triple Witching of expiring options. The NYSE Volume Friday was more than the previous two days combined!!! The McClellan Summation Index - cumulative reading of the Oscillators - continued to be negative - a rara avis, and a Bullish sign historically. Finally, money is flowing out of both MMFunds and Equity mutual funds - where is it going? We should know more next week when the monthly numbers from ICI come out (see below):

Date>		6/19/2015	6/12/2015
Indices:	DJIA	18015	17898
	NAZ	5117	5051
	SPX	2109	2094
WklyVolume (Bshs).	naz/ny….	9.2/4.8	8.2/3.6
Specul.Ratio hi=bullish		1.92	2.28
Sentiment:	put/call-CBOE	62	58
VIX>50-alltmlow=8.8		14	13.8
Advance/Dec-NYSE..		1766/1477	1442/1801
Weekly Net:		289	-359
Cumulative:		166146	165857
Weekly	NYSE hi/low…	237/241	212/292
New Hi's/Low's	Nasdaq h/l	380/146	307/120
McClellan	Oscillator	0	-25
McClellanSum	.+750/-1000	-199	-150
Newsletter	Inv.Intel -Bull	45.5	47.4
Surveys-Tues	Bear:-5yrs	16.5	16.5
Wed.	AAII  -Bull	25.4	20.0
	Bear	34.3	32.6
COT:SPX w/w	large/small (net)k	7k/(51k)	6k/(28k)
COT:gold  comm.hedg	long-short.000	(76k)	(79k)
COT:OIL comm.hedg	long-short.	(330k)	(325k)
US$-WSJ		85.6	86.3
CEOinsider	selling	24:1	18:1
off.&bd b/s.vs.	10% holder b/s	160/35	160/50
3-box rev	Bullish%-	62	61
US equity -ICI	Fund Flows	WeekDelay	(3.9B)
MMF flows	Change in $B	(11.1B)	(7.7B)
MargDebt- top (300M)	monthly	507B	APR.:
ETF:mthlyEqty/	Int'l/Bond-$B	1256/519/318	APR.:
2-yr Tsy Yield: Inflation			0.73%
TIP (ETF)	Inflation	112.61	111.67

DEGREES OF SEPARATION

According to the American Enterprise Inst., 100 years ago only 3% of High School graduates went on to higher education; 50 years ( my era, thanks to an athletic scholarship) it was 25%. Currently, thanks (??) to Uncle Sugar, it is 2/3 of the grads. Unfortunately - per BLS- less than 40% of current jobs need a college degree.

Another surprising stat, thanks to this week's Barron's, despite Income Inequality, U.S. households are now at record levels of prosperity -thanks to recovering stocks and housing prices - this stat from the Fed's Flow of Funds, who arranged the above. Although people who work and have pensions, stock options, 401ks, etc. are benefiting from the stock market rise (tripling since 2009), only 10% of stockholders (think CEOs of startups) own 80% of the stocks. And 15% of mortgage-holders are still under water.

Although it is nice to live in a country with a Benevolent Gov't ( Congress looking out for you {r Vote} ), it seems whenever they put their thumb on the Free Market Scale, bad things happen - Soc. Sec., Medicare, Housing Bubbles, (Stock Markets?), College Loans, ad nauseam. I even wonder about San Francisco's enticements to tech companies causing housing and rents to skyrocket (where do the busboys and teachers live?). The average studio apartment rents now for over $3,000/month.

The Stock market continues to be in  a Zombie trance, albeit wild daily swings, going nowhere (up less than 1% for the year. As seen in the table below, Volume is not that strong - usually from High Freq. traders the first and last hour of the day.  What stands out, however, is the Bull/Bear ratio of the AAII (Individual) inverting to a 20/32 ratio - bullish for stocks. Also notable, the McClellan Summation Index ( collecting advancing versus declining stocks) sank through the zero line. "Bears" watching for the near future. Finally, commodities smart money are still quite short.

Here are last week's numbers:

Date>		6/12/2015	6/5/2015
Indices:	DJIA	17898	17849
	NAZ	5051	5068
	SPX	2094	2092
WklyVolume (Bshs).	naz/ny….	8.2/3.6	9.0/3.6
Specul.Ratio hi=bullish		2.28	2.5
Sentiment:	put/call-CBOE	58	59
VIX>50-alltmlow=8.8		13.8	14.2
Advance/Dec-NYSE..		1442/1801	1329/1911
Weekly Net:		-359	-582
Cumulative:		165857	166215
Weekly	NYSE hi/low…	212/292	189/228
New Hi's/Low's	Nasdaq h/l	307/120	300/140
McClellan	Oscillator	-25	-39
McClellanSum	.+750/-1000	-150	31
Newsletter	Inv.Intel -Bull	47.4	51.5
Surveys-Tues	Bear:-5yrs	16.5	15.8
Wed.	AAII  -Bull	20.0	27.3
	Bear	32.6	24.6
COT:SPX w/w	large/small (net)k	6k/(28k)	8k/(16k)
COT:gold  comm.hedg	long-short.000	(79k)	(108k)
COT:OIL comm.hedg	long-short.	(325k)	(340k)
US$-WSJ		86.3	87.5
CEOinsider	selling	18:1	37:1
off.&bd b/s.vs.	10% holder b/s	160/50	.160/40
3-box rev	Bullish%-	61	63
US equity -ICI	Fund Flows	WeekDelay	(4.2B)
MMF flows	Change in $B	(7.7B)	3.1B
MargDebt- top (300M)	monthly	APR.:	507B
ETF:mthlyEqty/	Int'l/Bond-$B	APR.:	1256/519/318
2-yr Tsy Yield: Inflation		0.73%	0.72%
TIP (ETF)	Inflation	111.67	111.4

TECHNICALITIES

As mentioned previously most of my stock market analysis is done with Technical Analysis, while still using Fundamental for longer term, Observable yet not Actionable, results. Recently Barron's stated that analysts' estimates of stock earnings missed by 35%; the employment numbers last week missed by 25%. How does this help one make money or, better yet, keep from using it.

Today's market action decline, as expected, bounced up off the S&P 500 level of 2080, where there seems to be quite a bit of Support - i.e., where previous Buyers came in and Sellers stopped selling. After 3 weeks of declines, both in Price and Breadth ( Advances vs. Declines), this week should be closely watched.

The advent of technology has been a boon to Technical Analysis in that it allows megadata to be analyzed as never before - add to that (again as reported in Barron's) HFTs (high frequency traders, or electronics) are moving more and more in "herds", which is what Sentiment and Contrary Opinion is all about. The Trend is your Friend 'til it Bends at the End!

Sentiment Indicators show no reason to panic yet, with the VIX up slightly, but the AAII Bull/Bear surveys close to even; small S&P futures traders are still net short, while large ones are long. The Indicator - Bullish % - a measure of stocks on a Buy signal, is high, but not at extremes yet; looking back at my data from 2000, this is one of the better ones to look at for tops and bottoms.

Here are the numbers:

Date>		6/5/2015	5/29/2015
Indices:	DJIA	17849	18010
	NAZ	5068	5070
	SPX	2092	2107
WklyVolume (Bshs).	naz/ny….	9.0/3.6	7.2/3.4
Specul.Ratio hi=bullish		2.5	2.12
Sentiment:	put/call-CBOE	59	64
VIX>50-alltmlow=8.8		14.2	13.8
Advance/Dec-NYSE..		1329/1911	965/2259
Weekly Net:		-582	-1294
Cumulative:		166215	166797
Weekly	NYSE hi/low…	189/228	148/132
New Hi's/Low's	Nasdaq h/l	300/140	190/142
McClellan	Oscillator	-39	-34
McClellanSum	.+750/-1000	31	175
Newsletter	Inv.Intel -Bull	51.5	48.5
Surveys-Tues	Bear:-5yrs	15.8	14.9
Wed.	AAII  -Bull	27.3	27.0
	Bear	24.6	25.1
COT:SPX w/w	large/small (net)k	8k/(16k)	8k/(16k)
COT:gold  comm.hedg	long-short.000	(108k)	(110k)
COT:OIL comm.hedg	long-short.	(340k)	(345k)
US$-WSJ		87.5	87.3
CEOinsider	selling	37:1	27:1
off.&bd b/s.vs.	10% holder b/s	.160/40	.160/20
3-box rev	Bullish%-	63	64
US equity -ICI	Fund Flows	WeekDelay	(2.9B)
MMF flows	Change in $B	3.1B	4.6B
MargDebt- top (300M)	monthly		507B
ETF:mthlyEqty/	Int'l/Bond-$B		1256/519/318
2-yr Tsy Yield: Inflation		0.72%	0.61%
TIP (ETF)	Inflation	111.4	113.21

 

Torpedo Ahead

Another disappointing security was just sold, minimizing the loss with dividends and ITM calls: Century Tel (CTL).
Bought 200 shares at 40.54, and gave up today with huge Insider Selling (Form 4), despite B rating by Schwab and 5 star by S&P !! Sold at 32.28 ($1669 loss) ameliorated by $700 div'ds and calls sold, for a loss of $975. Better than just owning the stock and watching it drop.
Once again DITM not only enhances return, but minimizes losses.
Current positions include VZ, CVX, INTc, GM, GG, UVV, VNR (partially called away).

GETTING SENTIMENTAL (NOT FUNDAMENTAL)

Twenty years ago I got my CMT designation (Chartered Market Technician) from the Market Technician's Ass'n, comparable to a Master's - three levels over three years, including a thesis which was on Sentiment, or Contrary Opinion, sometimes viewed as the fourth leg of the Technical Analysis stool of Price, Volume over Time. Since then I have written a blog on the Indicators I feel are most meaningful as to market direction, short and long term. Important to remember is that change of direction occurs when a majority of Indicators reach EXTREME; the "crowd is usually right during the trend!

For new readers I wanted to explain the matrix below and how to use these.

First, the major Indices - Dow 30, Nasdaq or Over The Counter, and S&P 500 (SPX) levels, week over week.
Nasdaq to NYSE (New York Stock Exchange) Volume indicates the level of speculation- high OTC.
The CBOE (Chicago Board of Options Exchange) put/call ratio measures how afraid traders are of the immediate future - buying put options to hedge or speculate on a downturn - this is one of the better short term signs, as they are usually wrong- i.e., high put/calls are Bullish.

The VIX, or Volatility Index is more intermediate term and coincident, rather than leading - at current low levels (12 or 13) it could foretell an imminent drop in the market - VIX calls can be used as a hedge, as they rise in downturns.

Advance/Declines are Breadth Indicators, showing investors' confidence in stocks - they have been negative most recent weeks.

Two market survey letter - the Intelligent Investor, put out by wire houses on broker advice, and AAII, or Independent Investors polled by postcard weekly, are also contrary Bull/Bear signals. High Bulls on either, especially AAII, are dangerous short term.

COT or Commitment of Traders is a record of trades done on various commodities, with commercials hedging being the "Smart Money". Various records of Insider Trading - CEOs, 10% holders, etc. have been boringly stable recently and of no apparent use. Fund flows are also of interest, but not actionable. Margin Debt is at record levels (with low interest rates) but are coincident.

Here are last weeks numbers:

Date>		5/29/2015	5/22/2015
Indices:	DJIA	18010	18232
	NAZ	5070	5089
	SPX	2107	2126
WklyVolume (Bshs).	naz/ny….	7.2/3.4	8.3/3.4
Specul.Ratio hi=bullish		2.12	2.44
Sentiment:	put/call-CBOE	64	64
VIX>50-alltmlow=8.8		13.8	12.1
Advance/Dec-NYSE..		965/2259	1496/1731
Weekly Net:		-1294	-235
Cumulative:		166797	168091
Weekly	NYSE hi/low…	148/132	265/110
New Hi's/Low's	Nasdaq h/l	190/142	300/152
McClellan	Oscillator	-34	-8
McClellanSum	.+750/-1000	175	274
Newsletter	Inv.Intel -Bull	48.5	50.6
Surveys-Tues	Bear:-5yrs	14.9	15.8
Wed.	AAII  -Bull	27.0	25.2
	Bear	25.1	25.0
COT:SPX w/w	large/small (net)k	8k/(16k)
COT:gold  comm.hedg	long-short.000	(110k)	(133k)
COT:OIL comm.hedg	long-short.	(345k)	(350k)
US$-WSJ		87.3	86.3
CEOinsider	selling	27:1	36:1
off.&bd b/s.vs.	10% holder b/s	.160/20	.160/50
3-box rev	Bullish%-	64	64
US equity -ICI	Fund Flows	WeekDelay	(5.4B)
MMF flows	Change in $B	4.6B	20.6B
MargDebt- top (300M)	monthly	507B
ETF:mthlyEqty/	Int'l/Bond-$B	1256/519/318
2-yr Tsy Yield: Inflation		0.61%	0.62%
TIP (ETF)	Inflation	113.21	112.93