Dr Faessel 5-9-2011

 Silver fell 25% and crude oil 15%*

Last week the US stock markets reversed off the rip that clobbered the metals and the shocked the currencies, but important technical support held. A well needed pause in the spectacular run off the S&P downgrade me thinks.

* A word or two about the Silver collapse that set off the metals, crude oil and commodity reversal. Silver futures were on a hyper extended spike advance and screaming for selling. Technically it was in la la land and once it began to reverse there were no support levels anywhere close. I have to think this whole commodity/metals reversal is a boon for Main Street and a plus for profit margins. Also likely it takes the pressure off the Fed to raise rates.

Let’s remember that a week ago Friday the Dow Jones Industrials, Dow Transports and the Dow Jones Utility Average simultaneously reach new recovery highs, significantly; the Dow Transports, S&P Mid-cap and Russell 2000 posted ALL TIME HIGHS.

The McClellan Oscillator ( favorite overbought / oversold indicator) is in neutral, with put / call volume ratio’s still rather subdued, Bullish sentiment remains moderately low.

Short term price support in the in the S&P 500 (SPX) is at 1336 -1338, and then a few ticks lower better support is at 1333. Three weeks ago Monday's (S&P downgrade) low and price support is at (SPX) 1249.05. The 50-day moving average support in the S&P 500 (SPX) is at 1320 and 200-day moving average support is 1226. The (SPX) closed at 1340.24 on Friday.

Short-term resistance in the S&P 500 (SPX) is at 1355. A stiffer layer lies at 1370. The next resistance level that goes back to May 2008 is at 1440. An all-time high in the S&P 500 (SPX) is 1576.

Tracking the Bond Markets $ 91 Trillion –

The BARRON’s Confidence Index ** last week came in at 78.3. Three-months ago it posted new cycle highs of 83.7. The recent high numbers “at or near” the 80’s are at levels not seen since the fall of 2007. When you consider the news backdrop of the last few months this is pretty remarkable.

Friday’s key indicators and metrics:

·                       Friday’s McClellan Oscillator is Neutral @ minus 41

·                       Friday’s Gold (COMEX) $1491.6

·                       Friday’s Silver (COMEX) was 35.283

·                       Crude oil (NYMEX) $97.18

·                       The Treasury 10-year yield 3.1570

·                       3-month $ LIBOR at 0.276

·                       CBOE Put / Call Volume Ratio – 0.98 / Thursdays 1.06

·                       Euro – 1.4323

·                       VIX – 18.40

·                       US Dollar Index – 75.08

·                       Canadian Dollar – 1.0308

·                       Copper – 3.9635

·                       Aussie Dollar – 1.0623

* Key WEEKLY BULLISH SENTIMENT (i.e. CONTRARY INDICATOR) data points are showing ebbing BULLISHNESS.

Consensus overview of Bullish Investor Sentiment eased last week from the uptick of the prior week. It had been generally on the decline for several weeks and is generally well off the highs in bullishness established in January and February.

(High BULLISH readings in the Investor Sentiment Readings usually are signs of Market tops; low ones, market bottoms.)

·       The American Association of Individual Investors [AAII] Investor Sentiment Survey ofBULLISHNESS eased to 35.5% from the 37.9% of last week. Three-weeks ago it was 32.2%.. In January it ticked new cycle highs of 63.3%. The low of the May 2010 selloff was at 30.1% [The lows registered on March 9^th 2009 were an historic low posting of only 18.9% BULLISH.]

·       The AAII Investor Survey of BEARISH sentiment was 31.9% a bit more bearish that the 30.7% of last week. It posted 28.9% one month ago. February lows were 25.6%. January’s BEARISH sentiment lows were at 16.4%and that was lows not seen since 2005. The highest Bearishness occurred 6 months ago when it ticked the summer “market retreat” high at 57.1%. Item of note: In August 1987 it ticked the lowest low ever recorded at 6% BEARISH – Remember what happened on October 19, 1987...

·        Consensus IndexBULLISH investor sentiment was 73% up from the 68% posting of last week. The week before it was 64%.Five (5) weeks ago it was 71%. The recovery cycle high at 76% was established 9-weeks ago. The multi-year highs in Bullish sentiment of 76% were first reached in the first week of May 2007 just prior to the massive down-leg.

·        The Market Vane (Market Letter Survey) readings again ticked 65%. Three weeks ago it posted 57%. The survey posted new cycle highs at 68% three-months ago. Market Letter writers had backed off the levels of the Bullishness seen in late 2007 when the Market Vaneroutinely registered above 70%.

·       The Citygroup “Panic / Euphoria” Model backed up to a plus 0.28 from thecycle high of a plus 0.38 that was registered last week, still in the neutral zone but, DANGEROUSLY CLOSE TO EUPHORIA. The model moved frompanic into neutral in October 2010. Friday’s posting, while still “barely” in the “neutral” zone at 0.38 is the highest in since the 0.6 Euphoria postings in May 2008. During the dot-com bubble highs of December 1999 the model posted ALL-TIME highs of La-La-Land euphoria at 1.70.

** The Confidence Index is the premier measure of how the bond markets trillions (total global is around $91 trillion and USA is 39% of that) are allocated: (The bond market is twice the size of the stock market.) The ability of this key indicator of market health to post near new highs bodes well for the economic recovery and for stocks to continue forward. One year ago the index was 75.7.

For my Best Ideas for 2011please send an e-mail request to:Dr.Faessel@onthemar.com