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The TTT HEDGE FUND was out of stocks and into cash and puts for a session as conditions warranted some caution . As we saw :
Despite some solid gains in the major indices, it sure seems slow out there today.
Volume in on track to come in lighter than average, which some would consider a warning sign, but I haven't found it to be consistently so. More worrying to me is something like the Liquidity Premiums, which show whether traders are concentrating on individual equities or ETFs. They're starting to become extreme (already there in case of the Nasdaq 100), and that is one cause for concern, but slightly lower-than-average market-wide volume is not.
Our shorter-term guides have spent the day coming off their overbought extremes from yesterday. While most of the components of the STEM.MR Models hit extremes yesterday, the models themselves did not (they're constructed to make it harder to hit overbought extremes in uptrends as opposed to trading ranges or downtrends). I would have figured they would have today given the price action.
This is obviously very strong trading activity, and I continue to have no desire to try betting on it stopping any time soon without some sign of confirmed price failure, which I'm taking to mean a move in the NDX back below 1885. Barring that or some wildly bullish sentiment numbers (which we're not getting), no sense in trying to pick this top yet.
Why the Bears Can't Catch a Break
05/03/07 9:00 AM EST
Outlook:
Good Thursday morning...we start the day with what looks like another gap-up open in the major indices on some benign economic data.
In a new Chart in Focus VIDEO posted this morning, I took a look at the surprising latest release from the AAII sentiment survey. Despite an "up" week during the survey period, and the indices trading at new highs, those looking for a market decline reached the highest levels since last summer's market low.
We had never seen such bearishness so close to a new high - not even close. When we combine both the bullish and bearish responses and calculate the "bull ratio", though, we can come up with a few possible precedents.
The current Bull Ratio is 35%, which means that of those expressing a definite opinion, only 35% are expecting the market to rise. Checking the 20-year history of the survey for any time the S&P was within 1% of a new yearly high with such low bullishness, we get four occurrences, outlined in the table below.
The table shows the date of the occurrence, the Bull Ratio at the time, the percentage change in the S&P from its previous yearly high (remember, we're only looking at those times when the S&P was within 1% of its high), and then the return in the S&P 1 month, 3 months, 6 months and 12 months later.
INVESTORS when that bearish Stocks shot up an average of 15% in 6 months !!!!
On average, the S&P was 10% below its yearly high by the time we saw these kinds of extreme sentiment readings, so obviously we're dealing with something truly out of the ordinary here, which is why we only got four occurrences.
The results are pretty bullish going forward, as we didn't see much of a drawdown over the next few months. As I noted in the video, this is a positive intermediate-term sign for the market, as long as we continue to see real-money gauges showing that folks are still putting money into the market, despite what they're saying in the surveys.
As for the short-term, I mentioned yesterday that once the Nasdaq 100 had recovered its breakdown level of 1885, I had no interest in sticking with my apparently wrong-headed idea that we were in for a failure and more short-term weakness, and that remains the case.
Our short-term models are close to cycling back into overbought territory, so it will be interesting to see if the S&P can reach and hold a new high at the open. I'm not brave enough (or stupid enough, depending on your perspective) to short the open in anticipation of at least a quick retracement, but if and when the models reach overbought, it would be unusual to see the market being able to sustain further gains when looking out three to five trading days. The only way I'd consider a short position in this market right now, and only a small one at that, is if the NDX reversed again and failed to hold that 1885 area.
So now we have 80% long stocks and leaps and 20% short NDX.
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