Replies to post #7261 on S&P 500 & Nasdaq Analysis and Trends

[Myself °¿°]

dead links...
http://www.investorshub.com/boards/read_ms...sage_id=3980993
http://insider.thomsonfn.com/tfn/tearsheet...nHeader=insider
http://www.#########.com/dollarbear2k3/ISM.html

[Myself °¿°]

Interesting article with charts…
I took the time to paste the article and charts because it is interesting
Note: This group is standing out on a limb looking down and voicing it loudly while at the same time saying come join us in Oct. 23-24

I found this link posted on Bullwinkle’s thread #board-1948 posted by Frenchee... not sure why it didn't land here too?
http://www.bigtrends.com/document.jsp?documentid=357

The Perfect Storm, Plus Join Price in Lexington October 23-24

BigTrends.com
MidWeek Update
September 16, 2004
First, please join us Thursday, 9/16 at 4:30 p.m. EST
for a complimentary live online seminar with Price Headley -
How to Find Big Trends in Stocks
Register here, follow instructions in the confirmation e-mail:
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THE PERFECT STORM

The market is at risk of a triple set of indicators that are all flashing important sell signals. In this week's update, we want to focus on our three key sentiment indicators (which we update every day for paid subscribers to our daily services): the RYDEX bull/bear fund flows, the CBOE Volatility Index (VIX) and the CBOE equity put/call ratio (continued below).
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All three of these measures of investor opinion hit overly optimistic extremes Tuesday, and were followed by a pullback on Wednesday. This makes us strongly convinced that the bounce we forecast after the high fear levels in early August after the weak jobs report is now coming to an end, and a downtrend lasting into the mid-October earnings reporting season appears very likely.

MARKET COMMENTARY

Our first key bearish indicator is the RYDEX (Nova + OTC) / Ursa ratio. We make this bull/bear calculation every day from these key funds assets, as the Nova fund tracks 1.5 times the S&P 500 and the OTC fund tracks 1-to-1 with the Nasdaq 100. Meanwhile, the Ursa fund is a bear fund that tracks 1-to-1 inversely to the S&P 500. So as assets come into these bull funds and go out of the bear fund, this ratio will rise, while a declining ratio signals the bull funds are losing assets and/or the bear fund is gaining assets.

While the ratio generally appears to mirror the market's moves, as shown by the S&P 500 daily chart on the lower panel of the chart, we can measure relative extremes by plotting the 20-day Bollinger Bands (in red) around the RYDEX ratio. Note that when the ratio rises under the lower band and the turns back up above the lower band, that is considered a key buy signal, while a move over the upper extreme followed by a close under the upper band signals a sell. The position is held until it is either reversed by an opposing signal, or if at least 15 to no more than 20 trading days elapse, or if the position is unprofitable after 5 days or more. Note that the buy off the early August low was quite effective and the two prior buys occurred within days of the key short-term lows. Meanwhile, the last peak at the start of July was very accurate in marking this important top. At Wednesday's close we now have another of these key sell signals. So even though we are above the 10-day (red) and 20-day (blue) moving averages on the S&P 500, this indicator says longs should be exited and bearish positions should be built here.




Our second key indicator to send out a bearish alert is the CBOE Volatility Index (VIX). The VIX has become known as the "fear gauge" for its ability to catch bottoms when the VIX spikes higher. But the VIX is also a gauge of investor complacency when it gets too low. I saw an article disputing that low VIX signals mark important peaks, and it's true to a degree that the low VIX signals often take more time to form the top than the bottoms that occur quickly in times of high VIX fear signals. But more often than not, the low VIX is a sign that no one is worried, as interest in puts (bets on the downside) diminishes as the market rallies.



Note that while the VIX did not catch the lower 20-day Bollinger Band, it did hit the lowest levels in the last 8 years, on a daily closing basis down under 14%. With the pattern of lower highs in the S&P 500, this investor complacency is disturbing. The rational expectation is for investors to get more hopeful as the indexes make new highs. As a result, these high hopes set the market up for disappointment in the next month. We expect a return back up to the 20 level in the VIX before we see the next chance for a better short-term buying opportunity.

Finally, the CBOE equity put/call ratio adds the nail in the coffin for this market over the next month. We like to track the equity put/call ratio and exclude the index options, as this is a more pure contrary tool that reduces the hedging bias from investors and portfolio managers in the index options. While after the employment report in August we saw a multi-year high reading in the equity put/call ratio, which made us believe there was a rally coming which materialized this past month, we now have spiked down to the lower Bollinger Band, showing a bias towards the call side. Since option traders as a group tend to be too reactive to recent price trends in the market, we like to use these extremes as a contrary opportunity to bet on a reversal. The touch of the lower band in early June and early April set up trouble for the market over the next 6 weeks. While tops do not form as quickly, the immediate turn down in the markets on Wednesday after we saw this signal is an encouraging sign for the bears.



BOTTOM LINE

Usually all three of these indicators are not signaling at the same time. I can recall only a few times where they all occurred simultaneously, with the most memorable being on March 10, 2000, when I told then-giddy traders to get out of all longs right at the Nasdaq's bubble top. I expect the current perfect storm to ultimately require a retest of the lows near 1060, or at least the secondary lows around 1080 on the S&P 500. The Nasdaq should be good for a move back to the 1750 zone.

Enjoy the rest of the week!
Price Headley, CFA, CMT, President
with James Brumley, Research Analyst

BigTrends.com
230 Northland Dr., Suite 215
Cincinnati, OH 45246
1-800-244-8736
http://www.bigtrends.com/document.jsp?documentid=357