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:

BLACK FRIDAY, BLACK MONDAY:

Whatever shoppers are buying it ain't stocks today! The market's uncharacteristic parabolic Fall rally has finally taken a rest - down slightly on a shortened Friday market and more on Monday, as the Dollar descends to a 20-month low.
Whether it's hedgehogs taking profits, mutual funds tax-balancing, Japan carry-trade unwinding, or even Iceland krona dumping - technicians look to the charts for price, volume, momentum shifts; and of course, sentiment excesses.
Standouts last week included the AAII survey, which went to EVEN (41.9% of both Bulls and Bears) a rara avis. At rarefied levels are both the McClellan Summation and my cum.Advance/Decline number; also extreme is the NYSE New Hi/New Lo statistic at 663 to 28. The other meaningful survey - the Investors' Intelligence - spread to another high number ranging from 58.5 Bulls to 22.3 Bears. Finally, the Bullish per cent figure of stocks on Buy signals reached just under 78, a recent high.
Despite the tremendous liquidity out there, how high is high?

Mktsentiment. 11/24/2006......5Yr.HI........ LOW

DJIA 12280...........11577...........7286
Nasdaq 2460............2243............1114
S&P500 1400............1325............776
CBOE Equity put/call 54.............87-5/04........46-1/03

VIX 10.8.........44 9/02........10.3-7/05

ISEE-call/put 106...........299-12/04.......82-4/02
(>200/Bearish)

McClel Osc.(+75/-100) 12...............91-5/04.........(81)-5/04
McClelSum.(+750/-1000) 1051...........1568-6/03.......(726)-5/04

Newsletter Surveys:
Inv.Intel -Bull:62/28 58.5...........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 41.9/41.9.....n/a n/a
MarketVane Bulls 73......... 73..............24

Barron's Panic/
Euphoric Master Idx -0.57........-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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BLACK FRIDAY, BLACK MONDAY:

'TIS THE SEASON:

Normally, the November through January Holiday period is the best one for stocks, adjusting for a slight hiccup for year-end mutual fund/institutional selling. But it usually follows a cathartic selloff during the September-October months.
This year would be a hard act to follow, after the 15% rise in the Dow this Fall. With no sign of weakness, and cash coming from carry-trade, lower oil (now $55/bbl.), huge international M&As reducing shares and raising prices, money coming out of housing, as well as commodity and oil stocks, cash is pouring in like a drunken sailor would spend his voyage pay.
And with ETFs growing from 30 to 290 since 1999, the $34B pouring into new ones this year, that has to buy sector and index stocks, the end is not in sight yet; especially with growth funds underperforming the SPX by 4%, they're throwing money in the game with desperation.
Yet, it is hard to buy into this euphoria without some correction (we all know that once we do, the correction will start - Murphy's Law). Tempering our judgment are some lofty Sentiment Indicators this week:The McClellan ratio-adjusted Summation Index has again crossed up over 1,000; the Investors' Intelligence survey widened its Bull/Bear spread to 56.4 vs. 22.3, with most other statistics subsiding into the Holiday.
Finally, the Bullish per cent PNF chart is at a very high 77 level (number of stocks on Buy signals).
Here are the numbers this week:

Mktsentiment. 11/17/2006......5Yr.HI........ LOW

DJIA 12342...........11577...........7286
Nasdaq 2445............2243............1114
S&P500 1401............1325............776
CBOE Equity put/call 54.............87-5/04........46-1/03

VIX 10.0.........44 9/02........10.3-7/05

ISEE-call/put 118...........299-12/04.......82-4/02
(>200/Bearish)

McClel Osc.(+75/-100) 105...............91-5/04.........(81)-5/04
McClelSum.(+750/-1000) 1008...........1568-6/03.......(726)-5/04

Newsletter Surveys:
Inv.Intel -Bull:62/28 56.4...........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 46.6/30.5.....n/a n/a
MarketVane Bulls 73......... 73..............24

Barron's Panic/
Euphoric Master Idx -0.56........-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

Subscribe in a reader

'TIS THE SEASON:

HOUSECLEANING:

Now that the public has decided that a Woman's place is in the House, it's time to make some minor changes in the Sentiment Indicators: since the Commitment of Traders' gave no signal other than coincident, it has been replaced by Mutual Fund flows from AMG Data. Although Intermediate to Long term, it does reflect a contrary result, causing the public to be historically 180 degrees wrong at both tops and bottoms. Also being tracked are ETF flows.
Despite the shocking results,( both Barron's and the Iowa ElectronicMarkets.com had the Republicans winning the Senate), not much changed in either the Indicators or the market direction. Despite Demos profligate spending prognosis, the housing reversal, a slower Economy, etc., money seems to slosh in from Japanes yen-carry trade, etc. raising all boats.
Although the Transports cannot make a new yearly, not even monthly, high to confirm the Dow Theory, the Industrials do set records, paced by multi-national firms enjoying global increased profits.
Mktsentiment. 11/10/2006......5Yr.HI........ LOW
DJIA 12108...........11577...........7286Nasdaq 2389............2243............1114S&P500 1380............1325............776CBOE Equity put/call 62.............87-5/04........46-1/03 VIX 10.8.........44 9/02........10.3-7/05
ISEE-call/put 135...........299-12/04.......82-4/02(>200/Bearish)
McClel Osc.(+75/-100) 5.............91-5/04.........(81)-5/04McClelSum.(+750/-1000) 921...........1568-6/03.......(726)-5/04
Newsletter Surveys:Inv.Intel -Bull:62/28 52.1...........62.9-12/04......35-6/06Bear:43.2/16.1--5yrs 26.0.........38.2-3/03.......16-6/03
AAII-Bull/Bear 50.6/26.5.....n/a n/a MarketVane Bulls 73.............73..............24
Barron's Panic/Euphoric Master Idx -0.59........-0.24 4/06.....-0.75 11/05
Bullish%- 75...............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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HOUSECLEANING:

SNAPBACK:

After 6 straight down closes on the SPX (S&P500) one would expect a snapback, shortcovering rally, especially with Election Day looming tomorrow. After several months of observing the Commitment of Future Traders, no correlation to the market is apparent based on the net changes of the Small Trader, the Large Speculator, or even the Commercial Hedges; therefore it is being dropped from the matrix.
Another observation - although New Highs/New Lows data is not really Sentiment, it is an important Technical measure; lately it has been huge to the upside ( 733 to 29 the prior week, 516 to 55 last week on the NYSE). Upon examination, many of the issues are either ADSs (foreign stocks) or Closed End Funds and Preferred stocks.
The only Sentiment Indiicators worthy of note last week were the McClellan Oscillator zooming down to -32 from +7 , bringing the Summation below 1,000 but still overbought; the Investor's Intelligence survey widened its spread further to 53.7 Bulls vs. 28.4 Bears a complacent difference; the AAII backed off from its Bullish stance.
Meanwhile record short interest and impending favorable months indicate the Bull is just resting, not over - although the Election results could cause a stir, and the Kinchin 4-year cycle could still kick in if funds/hedgehogs want to dump stocks.

Mktsentiment. 11/3/2006......5Yr.HI........ LOW

DJIA 11986...........11577...........7286
Nasdaq 2330............2243............1114
S&P500 1364............1325............776
CBOE Equity put/call 63.............87-5/04........46-1/03

VIX 11.1.........44 9/02........10.3-7/05

ISEE-call/put 117...........299-12/04.......82-4/02
(>200/Bearish)

McClel Osc.(+75/-100) -32...............91-5/04.........(81)-5/04
McClelSum.(+750/-1000) 929...........1568-6/03.......(726)-5/04

Newsletter Surveys:
Inv.Intel -Bull:62/28 53.7...........62.9-12/04......35-6/06
Bear:43.2/16.1--5yrs 28.4.........38.2-3/03.......16-6/03

AAII-Bull/Bear 43.8/36.9.....n/a n/a
MarketVane Bulls 73......... 73..............24

Barron's Panic/
Euphoric Master Idx -0.61........-0.24 4/06.....-0.75 11/05

Bullish%- 74...............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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SNAPBACK: