Dr Faessel - MARKET -- 10-11-2010

SOLID BREAKOUT

ALL CLEAR from investor SENTIMENT and the McClellan CONTINUE

BULLISH SENTIMENT SLIDES BACK (a PLUS)*

OVERBOUGHTNESS (MCCLELLAN) IN NEUTRAL

STILL MORE TO GO...

There is more upside in this market advance based on several imperative market internals; the escalating, but not yet excessive sentiment overview and overbought / oversoldness that remains in neutral, the technical broad based breakout of leading averages that fired to 5-month highs (including a Dow Transports high - “Dow Theory musings”) and also vital are the astute overviews of increasing money flow matched with bullish / bearish configurations in leading stocks that continue to indicate a still bullish set-up. Add in the trading void set up created by the abrupt downstroke that ripped off 140 S&P 500 SPX points in the first week of May, short squeeze factors, all-time low interest rates, comparative return considerations from bonds / stocks and it's "more of the same." The "world" situation stinks, but the market is okay.

The former resistance and now support in the (SPX) is at 1150. Short term trendline support in the S&P 500 (SPX) is 1160. More robust price support is at 1139 then 1124 and 1110. 200-day moving average support in the (SPX) is 1119. The deepest support lows are the July lows at 1011.

The next major price (and trendline) resistance at the (SPX) top of 1174. The recovery high (and what will be most important resistance) is at (SPX) 1219.80 was visited on April 23^rd.

ALSO NOTEABLE:

For the first time since the financial crisis, the total amount of securities and loans on the books of U.S. banks has begun to expand again. A turnaround in bank credit could bode well for the economy in 2011 and beyond.

Key bond market data points like the Barron's Confidence Index** and the Ted Spread*** continue with "all-clear" readings.

Key indicators and metrics:

·              Friday's McClellan Oscillator is at a neutral plus 64

·              The Treasury 10-year 2.381%

·              3-month $ LIBOR at 0.289

·              CBOE Put / Call Volume Ratio – 0.85 – Thursday's was 1.07

·              (VIX) – 20.71

·              Euro - 1.3904 highest since March 

·              Copper - 3.7665 the highest tick since June 2008

CONTRARY INDICATOR & WEEKLY SENTIMENT:

BULLISH longer-term investor sentiment readings have slid back a bit from their highs of last week and the week before. If you recall in last week's report a couple of them had moved into the “concern” mode.  All the surveys are well off their deep and “foreboding' lows of the recent couple of months.

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

·       The Consensus Index BULLISH investor sentiment survey was at 56%. Last week's high was 63% BULLISH (21-week highs).  The highs in Bullish sentiment of 76% from the Consensus Index were reached in the first week of May, just prior to the huge down-leg. The prior 10-weeks were 58%, 51%, 50%, 41%, 42%, 47%, 51%, 50%, 44%, and 34%. (The low of this market retreat)

·       The Market Vane (Market Letter Survey) posted a BULLISH read of 54%. The preceding 13-weeks were ― 55.9% 53%, 50%, 48%, 43%, 42%, 46%, 50%, 48%, 50%, 44%, 46% and 39%. (The low of this market retreat) 18 weeks ago it posted the high of the cycle at 53%.The highs in 2009 were 58%. In 2007 it was above 70% BULLISH.

·       The AAII Investor Sentiment Survey BULLISHread was 49%. UP from last week's read high of 42.5. The prior 9-weeks were 45%, 50.9%, 43.9%, 30.8, 20.7%, % (the low of the pullback) 30.1%, 39.8% and 30.4%. [The lows registered on March 9^th 2009 were an historic low posting of 18.9% only BULLISH.]

·         The AAII Investor Survey of BEARISHsentiment ticked DOWN a few percentiles to 27.7 from last week's 31.6%. The week before it was the low of cycle at 25.4% (The recent down cycle started in early May. The prior 11-weeks were 24.3%, 31.6%, 42.2%, 49.5%. 42.5%, 30.1%, 38.2%, 33.3%, 45%, 37.8% and 57.1% the highest Bearishness of the market retreat.

*** The BARRON's Confidence Index reversed a fraction to 77.4, from last week's read of 77.6. The low of the recent market retreat in May had the Index at 72.9 on August 29^th. The Index registered new highs of the cycle on June 4^th at 79. One year ago it was 67.3. The ability to hold at these relative highs suggests that the recovery chugs on.

A falling confidence index reflects decreasing confidence in the market. Historically, healthy BARRON's Confidence Index numbers are in the 80's.

The Confidence Index is the High-grade bond index divided by the Intermediate grade and is a premier measure of how the bond markets many $ trillions are allocated. The discrepancy between the yields is indicative of investor confidence. There had been a solid improvement in the spread ratio since its all-time low of 45.2 in December 2008, indicating that bond investors are growing more confident and have started opting for more speculative bonds over high-grade bonds. The recent retreat in numbers is definitely a danger alert.

** The Ted Spread a gauge of bank cash availability that's the difference between what banks (3-month Libor) and the Treasury pay to borrow money for three months bills was at 17.45 basis points today, after reaching of 13.48 basis points, the lowest tic since April 5^th.

In early & mid March the Ted Spread dropped to a posting of just above 10.5. But by June 10 it ran up to 48 in the Euro / Greek panic. The Ted Spread 2008's high (the height of the global credit crisis) of 464 points was in October 2008. It averaged 37 basis points in 2006.