Replies to post #1053 on Ander's Market Theories (AMKTH)

[AnderL]

This may become a broad based rally into FOMC. Resistance was at 1550, on the NDX 10350 on the INDU, 2070 on the COMPQ and 1190 on the SPX.

The bottomw was put in by the NDX and COMPQ last week ahead of the INDU which rallied ahead of all the other markets. It was the techs that keep everything back this week at that 1550 resistance. Yesterday going into today they held stronger support than the other markets and more than made up for it by breaking resistance first and pulling the other markets into the green. Technology stocks tend to always signal a bottom reversal as energy and metal stocks tend to signal top reversals.

SPX seems to be lagging all the markets holding them back right now and that is what makes me resistant to consider this a full fledged reversal and rally into the holidays. So I'm still cautiously holding the UOPIX and watching how the markets handle the SPX underperformance. To bring more jubilation into these markets I would expect that the SPX would have to break that 1190 prior to the close to help keep the large gains from today.

[AnderL]

More Bears Than Bulls
by Keith Kennedy

67% sounds like a lot. Over 2/3s. Everyone hates the market. Everyone is probably shorting the market at every resistance level. Scary how they don't fall far before support drill the Ask and drives them up. That puts a lot of fear into someone holding a short. Like a hedge fund maybe. Like most hedge funds maybe. Hedging seems like a good protection to protect your profits against down turns. But they make for a nice ripe set up. Especially when all the advisors are saying that the market is going down.

The number of bears among independent financial newsletter writers increased this past week to 67%, according to the FIFTITM Index1 from www.InvestorsInternet.com. The previous week the number of medium-term bears was 49%. These figures reflect the growing pessimism that was brought to light in September by the sharp drop in Consumer Sentiment. as shown by the survey results from the University of Michigan and The Conference Board.

Investor sentiment measurements are producing a wide range of results at the present time. In addition to the bearish value of the FIFTITM Index, the Spectrem survey of affluent investors just hit its lowest reading. The American Association of Independent Investors also has more bears (39%) than bulls (32%). The survey by www.lowrisk.com has equal numbers of bulls and bears at 38% each. In contrast, Investor's Intelligence has 50% more bulls than bears (45.8% bulls and 29.2% bears).

Like the FIFTITM Index, the Investor Intelligence figures are based on survey of the advice of newsletter writers. Editors at Investors Internet and Investors Intelligence make a subjective assessment of the advice that the newsletters are providing. The difference between the two indexes may be due to the fact that the FIFTITM Index is based on free newsletters from independent writers who are not part of a broker, bank or trading service, and is divided into short, medium and long-term opinions. The short-term FIFTITM index, in contrast to the medium-term, has more bulls (37%) than bears (26%), with 37% neutral. Many of the independent newsletter writers are expecting a short-lived bounce and then a further decline in the stock market.

The major question raised by the newsletter writers is will there be a seasonal rally? Last year there was a significant rally from late October until late December (The Dow rose nearly 1,000 points) and the bulls are expecting the same again.

The bulls argue for upside from both a fundamental and technical point of view. A positive earnings season coupled with the seasonally best time of the year for stocks and brisk reconstruction activity will ensure the traditionally rally to the end of the year and beyond. Technically, the Dow is well within the 10,000 to 11,000 trading range of the last 11 months. The S&P 500 has broken down out of its rising wedge pattern of the last 18 months, but false breakouts are common. The Nasdaq is well above 2,000, around which its long term support line touching the August 2004 and the April 2005 lows resides.

Those neutral on the intermediate term market say that much depends on the Federal Reserve. If the Fed really keeps tightening beyond current expectations the market will go down, but core inflation is not bad and the economy has weathered the hurricanes well so there is hope that the Fed will ease in the near future.

The bears expect more downside because of the many problems being faced. Rising interest rates, high oil and natural gas prices, a bursting housing bubble, consumers tapped out, consumer expectations falling dramatically as evidenced by the September Consumer Confidence surveys, high levels of private and public debt, the potential for Asian countries to reduce their dollar purchases, the continuing loss of manufacturing jobs, and unsustainable levels of company profits are amongst the problems they list.

Which opinion will win the prize is difficult to say at this time but the end-of-year rally needs to start in the next few weeks if it is to be substantial, so an answer to the question is nearing.

The above is based on the free, weekly newsletter provided at www.investorsinternet.com.

1The FIFTITM Index is based on Free Information From The Internet, and in particular, on advice provided by fifty independent newsletter writers selected from the book "The Investor's Free Internet".

Keith Kennedy Ph.D.
www.investorsinternet.com