Replies to post #47487 on !! Big Boards scans, charts and news !!

[Tuff-Stuff]

Schaeffers<>Monday Morning Outlook: Examining Last Week's Bullish Signal
Why the January Barometer may be little help to an investor
by Todd Salamone 1/24/2015 2:59:04 PM

The Dow Jones Industrial Average (DJI) and S&P 500 Index (SPX) both ended their weekly losing streaks on Friday, despite giving back some gains from earlier in the week. Of course, the big lift came on Thursday, courtesy of the European Central Bank's (ECB) monetary stimulus decision, which powered the aforementioned benchmarks to matching 1.5% daily gains. Despite these (and other) indexes now trading near resistance, Schaeffer's Senior VP of Research Todd Salamone explains why there's reason to believe these levels could be taken out.

One historically bullish signal from last week.
Why long-term investors shouldn't disturb their long positions.
Rocky White takes a look at the January Barometer theory.

Finally, we close with a preview of the major economic and earnings events for the week ahead, plus our featured sector.

On the heels of the European Central Bank's (ECB) decision to buy sovereign bonds on Thursday morning, world markets rallied. The S&P 500 Index (SPX - 2,051.82) began its ascent early last week -- ahead of the ECB's decision -- as buyers emerged with the index sitting on major support, which we've discussed previously.

Thursday's ECB decision propelled the SPX higher into positive territory for 2015 by Thursday's close. The move north of breakeven was short-lived, however, with the SPX moving back into the red by Friday's close. Perhaps investors are moving to the sidelines ahead of the Federal Open Market Committee's (FOMC) scheduled meeting next week -- and as indexes trade at resistance.

Moreover, the PowerShares QQQ Trust (QQQ - 104.26) and S&P 400 MidCap Index (MID - 1,455.79) rallied from round-number levels at 100 and 1,400, respectively. And the Dow Jones Industrial Average's (DJI - 17,672.60) low for the year remains barely above the 17,000 millennium mark.



Despite equities trading at resistance, there is an encouraging sign for bulls that short-term resistance levels will be taken out. Coincident with the ECB decision and subsequent market rally, the 10-day average of the equity-only, buy (to open) put/call volume ratio experienced a relatively sizable decline on Thursday. A single-day decline in this ratio of the magnitude we saw on Thursday has proven to be bullish historically. It is a sign that short-term traders are in the early innings of moving from an environment filled with caution and/or skepticism to one that is more optimistic. This transition typically lasts a few weeks and is supportive of stocks.

Specifically, the 10-day, equity-only, buy (to open) put/call volume ratio declined by 2.7% from a reading above 0.60, which is historically high. Since June 2012, it has done this 16 other times. On 14 of those occasions, the SPX was higher one week later by an average of 1.10%, or three times its anytime average over the same time period. Moreover, the SPX has advanced 88% of the time one week after this signal, more than the expected 61%.





Volatility expectations also remain on our radar. On the volatility front, the fact that single-day volatility is almost twice 2015's daily volatility is getting a lot of play on blogs and in various media.

One potential reason for the high single-day volatility could be the effects of a previous topic in this report -- extremely low SPDR S&P 500 ETF Trust (SPY - 204.97) put open interest and extremely low CBOE Volatility Index (VIX - 16.66) futures call open interest, which some investors purchase for portfolio protection.

If the low levels of VIX call open interest and SPY put open interest are indicative of market participants giving up on hedging -- after such activity proved to be a performance headwind throughout most of 2014 -- there may be more knee-jerk reactions to perceived negative headlines now, relative to last year, when portfolio protection was extremely popular. But the wide daily fluctuations have, so far, proven to be noise within the bigger picture. For example, the SPX's 10-month historical volatility is at its lowest reading since May 2013. On balance, monthly historical volatility continues to track lower since its peak in 2009.

If you are a longer-term investor, the longer-term, low-volatility trend suggests not disturbing your long positions, unless and until you see a significant break of longer-term support. After all, as the environment stands now, there is some rationale for portfolio-protection trades to lose their popularity from the perspective of a major decline in volatility during the past few years.

cont http://www.schaeffersresearch.com/commentary/content/ezines/mondaymorningoutlook.aspx

[lee kramer]

A severe problem [to some] in the late 1920's and into the 30's was a weak central government and a weak Fed. Keynesian economics was not yet available: prime the pump, introduce money into the economic stream when needed, remove it later, gently, during the next expansion when personal and corporate tax revenues expanded. Don't view the economy on an annual basis, as corporations do, but on a business-cycle basis.

The sharpies in Washing did the first, printed and shoved money into the economy and ignored the latter; gently removing it. And this has been the tune for the next 70 years. Ah well.

Deflation was the problem back then, and I suspect it may be again.