Bullish Sentiment Delivers Weakness
by
, 12-08-2013 at 01:26 PM (7200 Views)
We have had some pretty bullish sentiment readings from our TSP Talk sentiment survey the past few weeks and for the most part they did result in short term weakness in the market the following week. Last week, the survey came in at 62% bulls and 29% bears and as I anticipated, we got some weakness of it, although with the exception of the I fund, it wasn't very deep. And it took several trading days just for the C and S funds to shed a bit more than 1% before Friday's rally, which erased the bulk of the losses in the S fund and left the C fund flat for the week.
You should already know the reason for the limited downside. Liquidity. It remains fairly strong. It won't always be that way of course, but when it is, it can often put a floor under price.
We go into the new trading week in much the same situation, except our sentiment survey backed off its high bullish level to a more moderate one at 53% bulls and 37% bears. AAII had a dip in bullishness too. This is good news for the bulls. Especially since seasonality is getting more positive.
Let's look at some charts:
No signal from the Top 50 this week. For the new trading week, total stock allocations remained at 97.88%. High stock exposure in a high liquidity market has been the key to success in 2013.
It really shouldn't be a surprise to see stock allocations climb 5.45% last week from a total stock allocation of 52.59% to 58.04%. With seasonality getting more positive it makes sense to take more stock exposure. Keeping something on the sidelines isn't a bad idea either as this is a good time of year to catch bulls off guard. If we get any surprises to the downside, that sideline money is available to buy it.
Resilience. That's what this chart is saying. Last week's weakness seemed worse than it actually was, but price bounce off short term support, which is where the last dip reversed. Momentum has been tracking sideways mostly and Friday's rally may have turned it back up again, although it's too early to be sure. I would not be surprised by another test of the lows next week.
I like to mix up my technical charts a bit so we can see more than one perspective. Here, we can see EMW closed right at resistance. Momentum is largely flat, but price is still tracking along that rising trend support line. Support and resistance are about to converge, so we'll have to get a break in one direction or the other fairly soon. It does not have to be dramatic. I'd like to see price break to the downside and cross below support and maybe even the 50 day moving average. That may bring out the bears again and possibly set up a good buying opportunity. But that's just what I'd like to see. We could just melt up too.
Since the talking heads have to have something to point to when the market does what it does on any given day, I'm thinking that the rising yield on the 10 Year Note would make a great talking point should the market indeed fall through support on weakness. Friday's rally would seem to suggest the market isn't concerned, but concerned or not it can be used as an excuse to take price back down again. I am just throwing that out there as a possibility. I am not concerned about interest rates at this time by themselves.
So the charts remain bullish. Sentiment is not as bulled up as it was, which is a positive. Seasonality (January Effect) is almost at hand. Underlying support thus far has remained in place. These are all positives for the market. I am looking for weakness, even if only token weakness, earlier in the week, but expect the market to be higher by week's end. The key remains underlying support for this market. As it goes, so goes the market.
To see this week's full analysis, follow this link TSP Talk Members' Home Page