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Coolhand's Market Analysis

Looking Both Ways

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On Friday, I sent out an End-of-Week Update to point out the results of our weekly sentiment survey. It came in at 64% bulls and 26% bears. I've got a chart below that will give you an idea of how the market generally reacts to this level of sentiment.

But something else came up after Friday's close that I was not expecting. Our Auto-tracker has been showing a steady increase in stock allocations for some time. I expected that trend to continue last week. But when I reviewed the data, it showed a dip in stock allocations instead. Probably because of the bearish sentiment reading. I have a chart below that shows how the market has traded the week after a dip in stock allocations throughout 2013.

Let's go through some charts:

Interesting Fact-2013-top-50-trend-jpg

Not much change for the Top 50. Their collective high stock allocation continues to be bullish longer term in my view.

Interesting Fact-2013-total-tracker-trend-jpg

The Total Tracker (Auto-tracker) shows a modest dip in stock allocations. It appeared to come on Friday once our sentiment survey was released.

Interesting Fact-spx-png

Looking at the S&P 500, we can it made three successive all-time highs since last Wednesday. This in spite of our sentiment being modestly bearish with 55% bulls and 36% bears. There was little downside action to be bought. And while the S&P 500 is extended, it has been and continues to be bullish since mid-October.

Interesting Fact-tsp-sentiment-png

Going back almost 4 years, these are the weeks where sentiment had at least a 60% bull reading. Generally, the market declines after a reading of 60% or more, but there has been occasions when it didn't. Next week may be one of those weeks. I'll explain below.

Interesting Fact-total-tracker-png

I've posted this chart on a number of occasions. It shows you all the weeks in 2013 where stock allocations dipped across the auto-tracker and how the market performed the week after the dip. It's been overwhelmingly bullish. I don't really consider them signals so much as a market character observation.

So sentiment suggests a down week, but we have a dip in stock allocations which suggests an up week. My take is that with liquidity now at very high levels again, bullish sentiment may not deliver much downside action. This assumes underlying market support remains robust. If you look at the sentiment chart again, you will see that the week of 7 Jan 2013 had a 60% bulls and 30% bears reading. That's bearish, but the market closed higher. Why? Because at that time liquidity was at very high levels. Just like now.

For this reason, I am looking higher by next Friday. But that does not mean we can't get some selling pressure over the course of the week. I think sentiment will at least give us some degree of selling, which is likely a buying opportunity. It's tricky though. Can the market really continue to move higher with only modest to moderate downside action in between the peaks? Seasonality is getting more positive so it does make sense for longer term investors to look for buying opportunities now. My plan is to increase market exposure incrementally, just in case this market does decide to have a larger decline than we've seen so far.

To see this week's full analysis, follow this link TSP Talk Members' Home Page

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Updated 11-19-2013 at 01:52 PM by coolhand (Updated Auto-Tracker Charts)

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Comments

  1. FireWeatherMet's Avatar
    Hi Coolhand,
    Just wondering, on the Total Stock allocation, is that an old chart? The dates seem to be from about a month ago.

    FWM
  2. coolhand's Avatar
    Quote Originally Posted by FireWeatherMet
    Hi Coolhand,
    Just wondering, on the Total Stock allocation, is that an old chart? The dates seem to be from about a month ago.

    FWM
    You're right. I'm not sure how I did that since I don't generally save these charts week to week. But I updated them to their current status. Thanks for pointing that out.

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