Herd Buyers – Contrarian Sellers
From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.
Commentary for 2/6/12
The SPX was +2.2% on the week to a new rally high after the +1.5% gain on the Fri “funny number” jobs report. It made a new rally high at 1345.34 and closed at 1344.90 [+1.5%] on NYSE volume of 905mm shs, with the VR 86, BR 78, and A-D +1713.
WEEK:
ADVANCE: XBD +5.4 BKX +5.0 IBB +3.5 OIH +3.1 SMH +2.5
XLE +1.9 XLB +1.9 XME +1.7 RTH +1.2 PPH +0.6 USD +0.1 TRAN +0.1
DECLINE: USO -2.0 GDX -1.2 TLT -1.1 GLD -0.7 XEU -0.5
Most of the price move last week was on opening gaps higher, and the decline to 1300.39 came on an opening gap lower. The SPX opened in line Thur, and was flat the entire session as it finished +0.1% on a 7.6 point daily range. The only pullback so far in the current O/B condition was from 1333.47 [1/26] to 1300.49 [1/30].
It was election hype in full force Fri as the empty suits [ex Santelli] on CNBC hyped the + 243,000 jobs [not adjusted seasonally ] added in Jan, and the 8.3% UE rate, which is totally bogus, and even some of the mainstream media types are being forced to clarify the drop. As expected, the Administration is all over the report, as they should be in an election year, and the media is leading the parade for them [no surprise].
However, the reality is that an unprecedented 1.2 million people dropped out of the labor force in one month, which obviously lowers the UE rate, and the measure of those that are not in the labor force declined to 63.7%, which is a new 30 year low. The BLS will continue to pad economic numbers for Obama going into the election, if they can.
The politicians love to quote the Congessional Budget Office when it suits their needs, but in this case you haven`t heard a peep from the Democrats or the media, as you would expect, because the CBO is estimating an 8.9% UE rate year end 2012, a GDP rate of only +2.2%, and just +1.0% for 2013. It appears that the Fed statement about keeping short interest rates near zero through 2014 is influenced more by its own negative bias on the economy, which also seems to the be the CBO`s, in addition to whatever liquidity/sovereign debt shocks the Fed anticipates going forward.
The price persistence of this market advance on low volume has been relentless, and the momentum remains obviously O/B with the SPX 5RSI at 86.80 Bullish sentiment readings have reached extremes as the AAII indicator shows that “bulls now outnumber bears by the second largest percentage in the past 4 years, and the bearish sentiment is almost non-existent as there are fewer bears today than at any other time since the beginning of 2007, including the all-time SPX 1576 10/11/07 high”.
However, the timing of the market relative to sentiment extremes usually has significant lag time, but there is no favorable risk/reward to buying the current O/B market at these levels, but the US market as outperformed all other major foreign markets in US dollar terms in 2011 and if that continues it can extend the current O/B condition before any correction.
Regardless of which party wins the election, the structural US debt problems, unfunded liabilities, etc will not go away, but as I said in the previous commentary, if Obama gets elected the odds heavily favor the next bear market cycle because there will be more debt, more taxes, more regulation, bigger government, more wasteful spending, and he will continue to crowd out the private sector, which is always the Socialist agenda.
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