Coolhand's Market Analysis

Last time I was looking for lower prices to begin last week's trading and higher prices later in the week. That's largely how it played out, but was not easy to play. I suspected the dips should be bought in the short term and it would have been a great play if not for our IFT restrictions. The bulk of last week's weakness came Monday, but trading started out to the upside early on. The real weakness didn't come till well after our noon deadline, which made it pretty tough to trade. And while it was a decent sell-off, it wasn't as much as I was expecting. Tuesday did open lower, but the low of the week came in the morning. And once the weekly low was in the market rallied into Thursday where price on S&P 500 came close to Monday's high before a nasty late day sell-off sent buyers to the sidelines as Sequestration appeared imminent. Friday saw an initial shot lower, but once again the dip buyers stepped in quickly. The closing price on the S&P for last week managed to eke out a 0.22% gain overall. The S fund was pretty much flat, while the I fund had a modest pullback of just 0.25%. The F fund saw a nice 0.43% gain and that certainly suggests that there's still plenty of investors with little taste for risk.

Last week, the Top 50 had dropped their stock exposure by more than 11%, which increased the odds of a rally for the week. We got the rally, but it came from much lower. This week, not much has changed for that group. Here's the charts:




The Top 50 saw stock allocations drop a modest 2%, from a total allocation of 84.06% to 82.06%. So the group remains largely bullish.




The Total Tracker also saw a drop in stock allocations as this group reduced exposure by 3.26%, from 42.11% last week to just 38.85% going into this week.



Looking at a chart of the S&P 500 we can see that price has remained below that shorter term trend line, but well within that lower, longer term trend line. RSI remains positive and MACD is rising. While the intermediate term is telling me to sell this is still a strong market (and a longer term bull), so downside action could continue to be limited for awhile yet. But volatility is part of the action now and that could shake things up in terms of sentiment.

Speaking of sentiment, our weekly survey came in at 45% bulls vs 48% bears. While this is a buy signal for the system, it's also a lot more bulls and a lot less bears from the previous week (29% bulls vs 63% bears), so I'm a bit neutral with this week's reading. I also note that AAII is on the bearish side with only 28% bulls vs 36% bears.

For the new week I'm taking a wait and see approach. I'm intermediate term bearish, but neutral for this week. I can still see this market making another run to the upside given overall sentiment readings. In spite of my intermediate term bearish bias, I cannot deny that this bull is still kicking.