Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Here’s What Stock Market Investors Should Be Watching!

Stock-Markets / Stock Markets 2010 Nov 20, 2010 - 05:13 AM GMT

By: Sy_Harding

Stock-Markets

Best Financial Markets Analysis ArticleThe market is in what is usually its favorable season of November to May, when it typically makes most of its gains each year. But it hasn’t been that way so far.

Among other worries, analysts are concerned that the market’s consistent annual seasonality of ‘Sell in May and Go Away (until November1)’ has failed to work over the last two months. The market topped out on schedule in late April and was down 16% by July. This fall it began what is historically the worst three-month period of the year, August, September and October, with a big decline in August, which was the worst August in years. But then, usually negative September and October turned out to be just about the most positive two months of the year.


So can we be sure November, December, and January will follow their historical pattern of usually being the most positive months of the year? Or was the weakness that normally takes place in September and October postponed to November and December? November hasn’t started out well, with the S&P 500 down roughly 3% over the last two weeks.

So, analysts are watching potential support and resistance levels.

For instance, two weeks ago the S&P 500 had rallied all the way back to the level it reached at its April top. It has now pulled back from that potential resistance level, and in the process it broke below the previous support at its 21-day moving average for the first time since the rally began in early September.

The question is whether it can break back up through the resistance at that moving average and establish it as support again, or if the moving average will now become overhead resistance that prevents the market from making further progress.

Interesting enough, the market experienced a big triple-digit rally on Thursday that carried the S&P 500, Dow, and Nasdaq back up almost to their 21-day moving averages in one day. But the rally stopped just short of those resistance levels. So the question is still out there.

Normally, market analysts would not be focused on such short-term considerations. But a situation is also in place that might have intermediate-term implications, thus making how the market deals with the short-term support and resistance levels more important.

SEC filings show that usually astute corporate insiders have been selling into the market strength of the last few months at a near record pace, even as investor groups that have a history of being wrong at market turning points (extremely bearish at market bottoms and extremely bullish at market tops) have taken the opposite position.

For instance, mutual funds have a history of holding high levels of cash at market bottoms and being fully invested at market tops, and they have stepped up their buying in the last two months. Bank of America/Merrill Lynch reported this week that its latest poll of large fund managers, conducted between November 5 and November 11, found their sentiment to be the most bullish since April, that they have invested just about all they can, now holding on average only 3.5% of their investors’ assets in cash reserves to meet potential redemptions, one of the lowest levels of cash on record.

The latest sentiment report by Investors Intelligence, which measures the sentiment of investment newsletters, shows 56.2% are bullish, only 20.2% bearish, the highest level of bullishness since December, 2007, which was a couple of months after the severe 2007-2009 bear market began.

And the weekly poll of its members by the American Association of Individual Investors, showed sentiment had reached 57.6% bullish last week, its highest level in a number of years, higher than just before the 2007 bull market top (54.6% bullish), higher than just before the top in January of this year (49.2%) and higher than just before the April top (48.5% bullish).

It plunged to only 40.0% bullish this week, which had some pundits saying, “Ah, that removes the risk from the investor sentiment side.”

But unfortunately that’s not how it usually works.

The market was down sharply last week and the first three days of this week. So sentiment would be expected to be less bullish this week. But once a warning level of bullishness has been reached, a return to lower levels doesn’t usually make any difference.

For instance, at the bull market top in 2007, bullishness reached 54.6% on October 11. The market had already topped out two days earlier. The next weekly reading on the AAII poll showed a drop to 41.9% bullish, and two weeks later to only 31.2% bullish. Those subsequent drops in bullishness were of no importance, the 2007-2009 bear market was underway.

Similarly, at the April top this year, the AAII poll reached its high of bullishness at 48.5% on April 15. It dropped to only 38.1% bullish the next week. But that was of no importance. The peak of bullishness had been reached. The market topped out into the April-July correction on April 23, a week after the high reading.

So, analysts are probably justified in watching to see if the market can recover and break out above the potential resistance at short-term 21-day moving averages again.

If not, and the potential top-out at the high two weeks ago remains in place, those high levels of bullish investor sentiment last week will take on more importance.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in