Dr. John L. Faessel on the Market

Quote of the day

“I am a huge Bull on this country. We will not have a double-dip recession. I see our businesses coming back almost across the board."

~ Warren Buffett ~

     ~~~

BULLISH SENTIMENT ESCALATING (danger)... but

MCCLELLAN OSCILLATOR IN NEUTRAL, PLUS

MORE TO GO... NOW THROUGH RESISTANCE, METHINKS

So, the major indexes have bored through the 200-day moving averages as I envisaged that they would. And the S&P 500 SPX had a brief visitation with the stiff “price” resistance at (SPX) 1131, also predicted in last Monday's report. While there is some important market moving news on the way over the next couple of days I believe there is more upside based on the sentiment overview (that's perking but not at excessive levels) and overbought / oversoldness that's in neutral. Also, prescient overviews of advance / decline of leading stocks indicate bullish configurations. In addition key bond market data points like the Ted Spread* and the Barron's Confidence Index** continue with "all-clear" readings.

Let's also crank in and what I think are some very positive metrics from rail-transportation data and retail sales; The 26-week moving average of rail transportation data hit a 19-month high in the first week of September and the S&P Retail Index (RLX) representing shares of retailing companies in the S&P 500 is up 11% since the end of August. Taken together; this data says that products are moving at a much increased rate (19-month highs) and that product in the stores is selling at an increased rate. Good stuff! Should also note that the Dow Jones Transportation Index is up 8% this year. (Still below the April and May highs, but what the hell.) The Dow Jones industrial average is up 2%.

200-day moving average support in the (SPX) is 1116. Price Support in the S&P 500 (SPX) is 1124 then 1119 / 1115 then 1100 and 1090 and1075. Trendline support is just below 1050. The recent consolidation lows of price support are at 1040. The deepest support lows are the July lows at 1011.

The heavy “price” resistance at the (SPX) top of 1128 / 1131 has repelled the market twice since the May 2010 market tank. Looks like we could push thru that today and break the five-month impasse.

* 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 15 basis points last week, after reaching 14 basis points, the least since April. It was at 16 basis points at the end of last week. In early & mid March it dropped to just above 10, but by May it had plummeted to 38. 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.

Key indicators and metrics:

·              Friday's McClellan Oscillator is at a neutral plus 76

·              The Treasury 10-year yield 2.76%

·              3-month $ LIBOR slides deeper to 0.290

·              CBOE Put / Call Exchange Volume Ratio – 0.89

·              (VIX) – 22.01

·              Euro - 1.3045 

·              Copper - 3.521 the highest tick since late April.

Other Items of note:

·       Billionaire Wilber Ross, who has a great nose for value, said of the expiring tax benefits; “families making more than $250,000 a year comprise 40% of U.S. consumer spending. Considering consumer spending is 70% of our GDP, it's a bad idea to raise taxes on these folks.”

·       Pimco / Bill Gross (who runs the world's biggest bond fund at Pacific Investment Management Co.) cut their holdings of government- related debt for a second month in August, reducing  its investment in the US debt to 36% of assets, the smallest amount since April, from 54%the previous month.

CONTRARY INDICATOR & WEEKLY SENTIMENT:

BULLISH longer-term investor sentiment readings are moving higher off their “super” lows of one month ago.

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

 

·       The AAII Investor Sentiment Survey BULLISH read registered a high of the last 50.9%. The prior week was 43.9% and the week before that it was an extremely deep low of 30.8%. The prior 4-weeks were - 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 Consensus Index Bullish investor sentiment survey was rose to 51% BULLISH. The previous week was at 50%. The prior 7-weeks were 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 50%. The preceding 10-weeks were ― 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 AAII Investor Survey of BEARISH sentiment slid again to 24.3 from last week's 31.6%. The prior 9-weeks were 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 Indexmoved up a couple of ticks again to 76.0 from last week's read of 75.1. The Indexregistered new highs of the cycle three months ago at 79. One year ago it was 67.3. 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.

Stock to watch: 51job, Inc JOBS $36.01

Incredible chart (weekly and daily) Breaking out on a huge 600% increase in skyscrapers of volume. The company provides integrated human resource services to employers and job seekers primarily in the Peoples Republic of China.http://www.51job.com