Market Outlook 12-27-2010

Sentiment readings were very bullish across a range of indicators this week. To begin, Investors Intelligence Advisor Sentiment had its highest percentage of bulls (58.8) since the October 2007 market top. The American Association of Individual Investors poll had the highest percentage of bulls (63) since October 2004, and the lowest percentage of bears (16) since October 2005. Finally, the National Association of Active Investment Managers (NAAIM) shows that on average they are 81.83% invested. Market Vane posted a 75% bulls for Nasdaq reading last
week the highs since the 2007 top. This is in the high end of the ranges of these surveys and shows that these managers are quite bullish.

The put call levels have run in the 70's for the last three weeks on the CBOE that is extreme also. Volume is very light and open interest is also contracting so not allot of good news on the sentiment front. I have no desire to buy equities right now. It's defense mode selling into the rallies. The clear lack of volume and sentiment is overtly bullish. The market is trying to stay together into the last day of the year. December 31st to January 3rd looks to be the time frame of the short term top. 1230.50 is the massive support area.

The Market is a bit tired and the next 3-5 weeks will be sloppy (Defense Mode)

HINDENBERG SELL SIGNAL

December 14, 2010: 113 New Lows, 179 New Highs, 3063 Advancers+Decliners, McClellan Oscillator was negative (-5.36), NYSE Composite Index closed at 7855.22 vs 7272.53 50 trading days prior (October 4, 2010), and the 10 week moving average was rising.

Why do I care about it more than last time? Because the set up is the exact opposite of the last signal which was wrong.

Here it may be very right.

Basically, housing is not getting worse-but there is not much improvement either. Looking ahead, not much can be read into the dip in housing permits as the multifamily component is lumpy and volatile on a monthly basis. Until home sales pick up along with household formation (which depends on job growth), starts are going to remain sluggish. But again, the good news is that at least housing appears to have stabilized. Jobless claims improved slightly to an as-expected level of 420,000 in the December 11 week. This extends a run of improvement evidenced by the four-week average which has fallen for six weeks in a row. The average, at 422,750, is down more than 20,000 from a month ago in what is a positive signal for payroll growth. The four-week average for continuing claims, at 4.186 million, has been falling at 150,000 to 200,000 month-to-month clips to also signal payroll strength. Note this is a tricky time of year for adjustments and the Bureau of Labor Statistics warns that unadjusted claims will, starting next week, begin to build to an annual peak in the second week of January. Still, claims data continue to signal improvement in the labor market. NASDAQ futures have completed a five way advance from the November 2008 lows. The weekly RSI on NASDAQ futures has created a bearish divergence. Higher highs reached in the index last week but not in the RSI. The FXI is looking to go to test its 200dma at 41.98. I believe the United States stock market is going to have the same type of decline toward its 200 day moving average in the S&P futures. First comes the 20dma at 1214.00. Below that we work toward the Globex numbers at 1202.25 and 1176.25. The open interest contracted last Friday in the S&P & NASDAQ futures which is a sign of weakness. The 200/60 is 1232.56 currently and under this level pressure will continue on the market. A close under 1229.00 is the key to get the correction started in full force. Monday night is the next full moon and the next inflection point in the market.

Anything can and will happen we are now in MAX DEFENSIVE MODE.