Dr Faessel 2-7-2011

Copper at all-time highs...4.57*

BULLISH Sentiment as measured by AAII has been above its historic average for 22 consecutive weeks, the second-longest period ever. ** (see complete overview below)

But let's think about from whence we fell: It was from (SPX) 1300 (or about Dow 12,000) when the market collapsed to (SPX) 666 after holding (in a long band of support) for about 5-months... And bearish sentiment at the time was at historic lows. [The lows registered on March 9^th2009 were an historic low posting of 18.9% onlyBULLISH.] So, it's likely that this recent stretch of bullishness should be weighed against that "end of the world” all-time Bearish mindset i.e. giving it a hall pass. (Temporarily anyway)

It was just Friday one week ago that the market cracked near 2% and then we made it up quickly last Monday and Tuesday. In the face of extreme crisis in the Mideast the market said, no problemo” and we have chugged higher yet. The trading channel that began last September looks extremely solid suggesting an immensely "well bid" market, meaning that there is plenty of money ($trillions) stacked below the "bid" waiting to be allocated in stocks. Certainly, big picture woes are legion, but money was to go to work here in the USA for sure. From an overbought/oversold perspective (with the McClellan Oscillator in neutral at plus 26) it remarkably looks like we plow on higher. Early look has the S&P 500 futures are up $3.40. 

* Here's an insight and a little story; back in July 2005 I was with a group of international financiers, analysts and geologists in Mongolia at the Ivanhoe Mines (IVN) Oyu Tolgoi mine site. We were getting an extensive update on the progress of what management thought at the time they had in the ground and even back then it was thought that the resource would be possibly the world's largest copper and gold deposit (today it is for sure) At the time copper was a $1.50 (today it's $4.57) and at that time, $1.50 was high and the analysts were thinking about a potential big pullback in price. International financier and Ivanhoe chairman and CEO Robert Friedland who was presiding at these meetings said something that I've remembered ever since. Mr. Friedland is one of the richest, most intelligent and market savvy (and lucky too) guys ever... and he said that in today's world "things" will appreciate because Western currencies are "iffy".

If they were "iffy" in 2005, today there are really, really "iffy". He explained "things" meaning copper and metals of all sorts and obviously today you can add soft commodities i.e. agriculture to the "things" category and possibly even businesses with super solid franchises that are managed in a conservative way. (Think; Warren Buffett and the Berkshire Hathaway colossus (BRK.A) and (BRK.B) NYSE... I know, "things" are a bit obscure in the world of investing, but when you think about it, the US dollar or Euro has depreciated hugely compared to copper/metals/agriculture and looking forward with the global debt bomb not getting any better "things" still look good to me.

Government watch:

Let's put the $32 billion proposed spending cut by the new Republican House in perspective. Because the debt so mind-boggling high, viewing the colossal numbers doesn't make any sense, but squeezing them down to say, a $2000.00 gross amount it would be like cutting $0.02 from that gross number of spending.

The 50-day moving average support in the S&P 500 (SPX) is at 1259. 200-day moving average support is 1158. Other key “price” support and former major resistance in the (SPX) is at 1146 / 1150.

The next resistance above from the neck-line bounce highs on August 8, 2008 would be the (SPX) 1313. Then the major (SPX) 1400 > 1440 resistance that stalled the market for 5-months back in early 2008.

Key indicators and metrics:

·                       Friday's McClellan Oscillator is in neutral @ plus 26

·                       Friday's Gold (COMEX) $1348

·                       The Treasury 10-year 3.65

·                       3-month $ LIBOR at 0.3115

·                       CBOE Put / Call Volume Ratio – 0.87

·                       Euro – 1.3579

·                       VIX – 15.93

·                       US Dollar Index – 78.16

·                       Copper – 4.57

Key WEEKLY SENTIMENT (i.e. CONTRARY INDICATOR) data points:

** Consensus Bullish Investor Sentiment falls sharply from the recently posted cycle highs due to the Egypt, Tunisia turmoil. Recent consensus cycle-high bullishness was a major distress in the market. 

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

·        The Consensus Index BULLISH investor sentiment was 65% peeled back to from last week's 67%. Four weeks ago we ticked recovery cycle highs at 73%. The multi-year highs in Bullish sentiment of 76% were reached in the first week of May 2007 just prior to the huge down-leg. 

·        The Market Vane (Market Letter Survey) ticked 63%. The weeks before it was 61%. The 65% bullish readings of 3-weeks ago were the cycle highs in Bullishness by Market Letter writers and at levels not seen since late 2007 when theMarket Vanesurvey Bullishness was above 70%.

·       The American Association of Individual Investors [AAII]Investor Sentiment Survey posted 51%BULLISH  well up from last week's 42%. Seven weeks ago it ticked new cycle highs of 63.3%. The low of the May selloff cycle at was at 30.1% [The lows registered on March 9^th 2009 were an historic low posting of 18.9% onlyBULLISH.] 

·       The AAII Investor Survey ofBEARISH sentiment was 26.9 well off the high Bearishness of the prior week at 34.3%. Six -weeks ago it posted cyclic Bearish lows at 16.4% that were lows not seen since 2005. The highest Bearishness occurred 6 months ago when it ticked the summer “market retreat” high at 57.1%. In August 1987 it ticked the lowest low ever recorded at 6% BEARISH – Remember what happened on October 19, 1987...

·       The Citygroup “Panic / Euphoria” Modelticked up a bit to 0.18 from 0.16 the prior week. four weeks ago it hit cycle highs at plus 0.32. Friday's posting is about half way up in the “neutral” zone.

** Following the Markets $ Trillions – TheBARRON's Confidence Index is at 82.6 matching the cycle highs of 82.6 ticked 3-weeks ago...The recent numbers are at levels not seen since the fall of 2007.

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 new highs bodes well for the economic recovery and for stocks to continue forward. One year ago it was 74.9

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