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Market Sentiment, Sunday, 07/27/2003

Extreme Readings
By Jonathan Levinson

The VIX made a new closing low for the year today at 19.94, while the QQV and VXN came close. The bullish percents and record high percents are pinned to the tops of their ranges, while the bullish vs. bearish advisor surveys remain very close to multiyear bullish extremes.

Despite the all-out bullish tenor to our breadth, sentiment and volatility measures, equity prices have failed to advance, with the Dow and SPX trading for a month below its rally high, while the Nasdaq more bullishly printed its high during the week before last.

One would be correct to identify this as an unhealthy situation, with traders beating the drum harder but from lower levels. Unfortunately, reading the secondary indicators is never an absolute science, and the story need not be bearish. The VIX, for instance, could be leading an upside move in equity prices with its bearish divergence, as the smaller, "sharper" options market sends volatilities lower, possibly signaling a fresh break to the upside for stocks.

As with all indicators, their effectiveness is based on the respect of their usual range. In daytrading, a favorite strategy for playing a declining market was to sell downside spikes in the TRIN.NQ. As the market's bias was downward, every downside spike in the TRIN.NQ tended to be an unsustainable spike in buying pressure, and signaled a short term top.

Unfortunately, in a turning or a rising market, when the longer "waves" of buying pressure are building, this sensitive indicator would become buried at extreme low levels for hours or even days at a time. These low readings were signaling not selling opportunities, but their opposite.

In reviewing the weekend data, I find it useful to try seeing both sides of the trend, particularly as a defense against surprises during the trading days to follow. As always, minds work best when they're open.


Market Averages

DJIA ($INDU)

52-week High:  9353
52-week Low :  7197
Current     :  9284


Moving Averages:
(Simple)

 10-dma: 9148
 50-dma: 9015
200-dma: 8491




	
S&P 500 ($SPX)

52-week High: 1015
52-week Low :  768
Current     :  998



	
Moving Averages:
(Simple)

 10-dma:  990
 50-dma:  979
200-dma:  906




		
Nasdaq-100 ($NDX)

52-week High: 1316
52-week Low :  795
Current     : 1278



Moving Averages:
(Simple)

 10-dma: 1269
 50-dma: 1219
200-dma: 1078



		


If the VIX and VXN were stocks one might think they were both 
about to breakdown to new lower lows.  Or in the VIX's case, follow
through on the breakdown through support.  Low VIX readings typically
indicate market tops as bullish sentiment reaches extremes and 
buyers have absolutely no fear. 

CBOE Market Volatility Index (VIX) = 19.94 -0.52
Nasdaq-100 Volatility Index  (VXN) = 30.04 -1.41




Put/Call Ratio Call Volume Put Volume Total 0.67 508,821 339,703 Equity Only 0.54 378,442 205,434 OEX 0.60 33,855 20,404 QQQ 2.68 16,922 45,392
Bullish Percent Data Current Change Status NYSE 69.4 + 0 Bull Confirmed NASDAQ-100 75.0 - 1 Bull Confirmed Dow Indust. 80.0 - 7 Bull Correction S&P 500 75.8 + 0 Bull Correction S&P 100 82.0 - 2 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend
5-Day Arms Index 0.96 10-Day Arms Index 0.93 21-Day Arms Index 1.05 55-Day Arms Index 1.13 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points.
Market Internals -NYSE- -NASDAQ- Advancers 1900 1775 Decliners 927 1257 New Highs 113 123 New Lows 8 6 Up Volume 1214M 1003M Down Vol. 413M 542M Total Vol. 1634M 1559M M = millions
Commitments Of Traders Report: 07/22/03 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Not much new for us to decipher in the full contracts of the S&P 500 futures. Commercials remain slightly next short and the small traders remains significantly net long, expecting the markets to rise. Commercials Long Short Net % Of OI 07/01/03 415,976 453,005 (37,029) (4.3%) 07/08/03 415,053 453,720 (38,667) (4.5%) 07/15/03 414,020 453,033 (39,013) (4.5%) 07/22/03 411,206 442,131 (30,925) (3.6%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 18,486 - 6/17/03 Small Traders Long Short Net % of OI 07/01/03 150,232 75,937 74,295 32.8% 07/08/03 152,239 74,749 77,490 34.2% 07/15/03 148,716 70,279 78,437 35.8% 07/22/03 155,891 76,466 79,425 34.2% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 In contrast to the full size S&P contracts above, the E-minis is showing a drastic change. Commercial traders have been moving from net short to net long the last four weeks and the longs have finally out numbered the shorts. Right on cue, the small traders have turned the most bearish they have been in months. Commercials Long Short Net % Of OI Commercials Long Short Net % Of OI 07/01/03 175,893 216,993 (41,100) (10.5%) 07/08/03 192,815 224,124 (31,309) ( 7.5%) 07/15/03 214,274 218,765 ( 4,491) ( 1.0%) 07/22/03 249,392 249,386 6 0.0% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 6 - 07/22/03 Small Traders Long Short Net % of OI 07/01/03 57,639 67,449 (9,810) (7.8%) 07/08/03 56,394 72,090 (15,696) (12.2%) 07/15/03 45,372 54,654 (9,282) (9.3%) 07/22/03 45,945 76,071 (30,126) (24.7%) Most bearish reading of the year: (30,126) - 07/22/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is little change in the NDX futures by the commercial traders or small traders. Commercials Long Short Net % of OI 07/01/03 28,662 48,265 (19,603) (25.5%) 07/08/03 30,489 48,311 (17,822) (22.6%) 07/15/03 28,467 49,154 (20,687) (26.7%) 07/22/03 32,502 48,139 (15,637) (19.4%) Most bearish reading of the year: (20,687) - 07/15/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 07/01/03 26,777 8,498 18,279 51.8% 07/08/03 26,136 9,035 17,101 48.6% 07/15/03 26,489 8,004 18,485 53.6% 07/22/03 27,321 8,844 18,477 51.1% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders are becoming even more bullish on the Industrials while small traders are slowing increasing their net short positions. Commercials Long Short Net % of OI 07/01/03 20,504 11,871 8,633 26.7% 07/08/03 20,752 11,860 8,892 27.3% 07/15/03 21,607 7,855 13,752 46.7% 07/22/03 22,198 8,176 14,022 46.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 07/01/03 5,799 6,822 (1,023) ( 8.1%) 07/08/03 5,005 8,093 (3,088) (23.6%) 07/15/03 5,475 9,717 (4,242) (27.9%) 07/22/03 6,110 10,898 (4,788) (28.2%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 01/16/01


 

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