SENTIMENT
Over the past 3-weeks
sentiment hit extreme levels on 4-days. An
extreme day is above 72% bulls. Friday
the Sentiment hit 75% bulls. That is the
first step in topping for the sentiment indicator – we have a number of
individual days weeks ahead of the top that are extreme. Since the NTSM system uses a 5-day moving
average of Rydex selected funds to calculate our sentiment indicator, I watch
both the individual days, but especially the 5-day moving average (dMA). The 5-dMA
of sentiment was 62% yesterday and it may have switched to sell at today’s
close depending on whether the buy-the-dip crowd moved in. The problem is the data won’t be published
until later tonight.
PRICE
Price has switched
toward the negative as the down moves have been bigger than the up moves
recently; the indicator is now “hold”. Another
indicator in the Price suite of indicators is the “Panic Indicator.” It issued a sell today based on the huge move
relative to the quiet market we’ve had for some time. (The front page of the WSJ “Money and
Investing” section today was a story about how there had been 45-days without a
100-pt decline; most since 2006 – so much for that stat!)
VOLUME
Volume is neutral,
but it is trending down toward a sell.
VIX
The VIX indicator
came about as close to a sell as possible today, but it would take another 20%
hike in the VIX to tip it to a sell tomorrow.
WHAT’S AHEAD
What often happens at
this point is that the “Dip-buyers” move in on the down-day to buy the dip. The market can then move up to new highs for
another week or so. After a week, or
perhaps as long as 3-weeks, the market hits the top and it follows through with
a correction. If we follow that scenario
this time, I think we’re in for a small correction down to the 200-dMA. (We are
currently about 7% above the 200-dMA.)
The S&P 500 is at
the bottom of its trendline (more or less).
The trendline goes up as the market goes up; I have it currently pegged
at about today’s close. So now, whether
I stay invested (or reduce equity exposure from 100% to 30%) depends on the
dip-buyers over the next day or two. If
they move-in the market will go up; VIX will fall and I’ll be happy.
If not the NTSM system
will issue a sell. I just checked
futures (it’s 8:30 PM) for tomorrow and the S&P 500 futures are up about ¼ of
a percent so we may simply bounce off the lower trend line and go up from here
(as we predicted a while back). The Futures give an implied price at the open
depending on how they are trading.
The monkey wrench in
this up-beat scenario is the fact that the S&P 500 has not managed to get
much above the previous high of 1364. (That happened on 29 April 2011.) We made it to 1374 three-days ago, (about ¾ of
a percent above the prior high) but we need to go higher. Otherwise, the S&P will fail and make a
double-top in the process. (A double top
simply means the market couldn’t go appreciably higher than its previous high,
so it will go down. How far? I’ll toss out some guesses if that happens.
For the time being, I
think we will go up some more.
NTSM
The bottom line of
this update is the NTSM analysis remains HOLD today (regardless of the
Sentiment indicator) , but it could switch to sell tomorrow if the market
tanks.
TSP (the Government’s
version of a 401k) requires fund transfers to be made by noon, but NTSM is
based on closing data. At this point, I
don’t see it being worthwhile to try and make a decision at mid-day based on
where I guess the market may go. I have
tried before only to get outfoxed by the market. I’ll wait till after tomorrow’s close to
update the NTSM.
MY INVESTED POSITION
I bought back into
the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.
I remain 100% long in the long-term
portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM
System” – the link is on the right side of this page).
Just a reminder: 100%
invested in stocks is way too much for most rational folks. Don’t do it unless you have a high tolerance
for risk.
