Tuesday, March 22, 2011
very bearish sentiment
Will the low made last week in the cash S&P 500 at 1249 hold? Has a move to new bull market highs already started?
I think there is enough bearish sentiment around to support a strong up move. Take a look at the charts above. The top three are the 5 day (red), 10 day (green), and 20 day (purple) moving averages of the equity put/call ratio for the CBOE (charts courtesy of StockCharts.com). The chart right above this post is a daily chart of the cash S&P 500.
You can see that the 5 and the 10 day moving averages are very close to last year's high points reached during the April - July drop. The 20 day moving average is not there yet but it is getting close. This is particularly bearish sentiment in light of the fact that the S&P dropped only 7 % from its high vs. the 17% drop in 2010.
One factor behind this increase in bearish sentiment is "radiation hysteria" arising from news of the Japanese earthquake and tsunami disaster. All the more reason to fade the bears.
Sending the same message is the latest reading of the AAII market sentiment survey. Last week's number showed the greatest percentage of bears since early last September when the market was just starting a 30% rally.
The only technical consideration which holds me back from being very bullish in the short run is the behavior of my advancing issues oscillators. You can find them on my chart page. There were no significant bullish divergences between the advancing issues oscillators and the S&P at 1249. Most significant bull market corrections end with significant divergences.
So, what now? As you can see from the S&P chart above this average has rallied almost as far as its 50 day moving average (wavy blue line on the chart). If the market is going to drop to 1230 as I expect we will not see any close above the 1305 level in the cash S&P. Any such close would turn me bullish and tell me that last week's cash low at 1249 will hold.
In either case I think the S&P will reach new bull market highs within the next two months.