Sentiment Update

The latest AAII numbers show bearish sentiment multi-year lows.

And uber-Bear Marc Faber is sanguine on US equities but, of course, still likes gold.

Yesterday we asked if sentiment even matters anymore. Answer: it never matters... until it does.

Does sentiment matter?

Technical Take explores the bullish sentiment present for the past 5 months and the stunning bullish move.

Fading the contrarian indicators when all the bears have disappeared seems to be the play... or is this the top?

SPX: Bearish Wolfe Wave

TWM: high risk Wolfe Wave

Be careful with this set-up; use a half-position and use discipline with buy and sell stops.

Update: ESH10_F: Bearish Bingo!

Cha-ching. That's a target and I'm out for a quickie.

ESH10_F: Bearish Wolfe Wave

Target = 1107.75; Buy-stop = 1111.25

Sentiment Alert

Eric has done an excellent run-down of the various sentiment charts and his Davis Sentiment Indicator (TM) is pegged at 9.7 this morning (>5.0 indicates that bulls outnumber bears; >9.0 = Yikes!)

Also, the Rydex leveraged funds are telling us that the bears have gone into hibernation.

Good sentiment stuff on this snowy Monday to start off a likely low volume holiday week.

Ritholtz on the Market

Points he made:

1. We are still in a secular bear market.

2. The easy money has been made in the counter trend rally, but bias is still to the upside.

3. Inverse correlation of stocks to the dollar seems to be ending.

4. "We're giving the rally the benefit of the doubt. Innocent until proven guilty."

5. "The easy trade is to bet rally is over, and rarely is the easy trade correct."

6. Not a new bull market because valuations are still not as cheap as 1982.

7. Sentiment is middle of the road, and is not useful at the current juncture.

8. We could churn for 18 months, ala 1975 to 1978.

9. One graphic he had shows that bear market rallies average about 70%, and then show a 25% pullback before a 5 year churn. So, should we expect a 25% pullback soon?

IWM: Bearish Wolfe Wave

The small caps have been doing quite well this week in anticipation of a Santa Claus rally and the January Effect. Now we see a bearish Wolfe Wave for a pullback.

EuroUSD: Completed Bearish Wolfe Wave

EuroUSD has completed a bearish Wolfe Wave upon reaching the target today. The odd thing is that the indices, SPY, and especially XME had been moving pretty much in lock-step with the EuroUSD-- until this week

So despite a move up in the US dollar, stock including industrials and materials have also been moving up. I can't figure it out, but the has EuroUSD has achieved a goal, of sorts.

SPY: Wolfe and Elliot Waves

SPY targets based on both Elliot waves and Wolfe wave are approximately 108.80 in this cycle. Then we should bet a bounce consistent with the A wave of a counter-trend Elliot wave.

First the Elliot waves starting at last Fridays' gap up open:


















Then the Wolfe Wave on the same time frame. Both give a target of about 108.80 before the bounce. Or, the bounce at 108.80-ish could be the start of Elliot wave 4. But the near-term target remains the same.

SPY: Wolfe Wave Update

The bearish move that was set up this morning worked out well. I changed to a 65-minute chart for better viewing.

From Point 5 we dropped rapidly (more than I thought it would) to the red target line as sellers rode it down hard.

Another interesting item is the volume. Sure we had good volume on the morning high and the sell-off to the target, but what I did not appreciate at first was the high volume with the bounce from the target red line back up to the 20-bar EMA. That bounce was almost trade-able.

SPY: Bearish Wolfe Wave?

Eric commented this morning that it would be funny if we sold off on the "good jobs number". Well, that certainly didn't happen this morning with yet another yearly high on the SPY. It should be noted that other indices have not been making new highs this week as new money is running toward the safer big names... perhaps a sign we are near the top.

Eric also noted that macro man has stated the obvious: everyone has the 50% retrace level (SPX 1121) on their radar.

Also, Bespoke observed that we have had a few days where we gapped up or had a quick rise at the open, only to sell it in the afternoon. The adage is that dumb retail money buys in the morning and the smarter "adult" money sells it in the afternoon... another bearish indicator.

The next meme may be to protect the dollar with higher rates and the bond market has been (very subtly) signaling this. Gold and reflation names are being hit today.

Let's look at the obscure Wolfe Wave pattern for a clue. Yesterday I looked at the XME and the Wolfe was not very clean. Today's SPY Wolfe shows the peek above the trend from Point 1 to Point 3... so this may be Point 5 this morning?? The short-sell target is 109.60 and the time-frame is 12/9 (next Wednesday's close). A run above today's high would not invalidate the pattern, it just gives a higher Point 5 and the target would need to be re-calculated.

I do not do swing trades on SPY and prefer to use other indices or stocks, but it is worth looking at the SPY for the general view. I got some TWM (short smalls) and short GDX this morning... so I'm sure Eric will be fading me.

For more info on Wolfe Waves, Todd has done some good analysis on this indicator and I'm just starting to look at them. (He has no association with my lame attempt at Wolfe Waves!)

XME: Bearish Wolfe Wave

XME is a proxy for the inverse US dollar and a case can be made that the recent high is the top, based on the Wolfe Wave formation. Target is 46-ish.

What does AAPL tell us about the market?

AAPL monthly chart shows that new highs have recently been made and November was an "inside" month. This could be the beginning of a consolidation phase that lasts for a bit before a breakout to the upside. Or it could rollover. MACD is still bullish although slightly overextended.





Weekly chart shows AAPL having just completed a 3-push upmove, although not classically an Elliot Wave pattern (Wave 3 is too short), followed by a recent swing down which could be a consolidation pattern. Bears would need to be careful here.




Finally, the daily pattern shows the consolidation which could be the long bull flag formation. BUT, the MACD is clearly negative. Brian Shannon says repeatedly that MACD divergences are more useful at predicting a bottom than a top, so the significance of this may be limited. Conclusions below.



Conclusion: The 208 and 185 levels seem important. Any breakout above 208 would be significant and could tell us the entire market is healthy. A break down below 185 would tell us that even the market leaders, the big boys who are the last generals to be killed, have been shot.

XME at resistance for third time

EURUSD at resistance...

...back to the top of channel. Gold hit a recent high today intraday before dropping back again. If this is a range trade, then the EURUSD should come back a bit... but the odds are pretty good we get a continuation of the "orderly" take down of the dollar. Gold may be the "tell".