Better than Favors :))
"Shepler Capital Management: Weekly Outlook for 9/7 - 9/10/99
BEAR BURGERS
In our 8/23/99 commentary we stated:
"After a 9% rally off of the August 10th low, the SPX
appears to have put in at least a short-term top at the
high of 8/25. From here our cycles call for a short-term
low on 9/2 +/- 2 trading days, so the current pullback
could last well into next week before the market resumes
any rally... we would be very careful about buying into any
September crash scenarios, as our cycle analysis argues
strongly against any such occurrence. One bearish outcome
that appears more likely is that the current rally will
take the form of a contracting triangle "B" wave, with the
market whipsawing in a trading range created by 8/10 low
and the 8/25 high. This type of "B" wave would catch both
the "blow-off" bulls and the "crash" bears in a "meat
grinder" market, full of false starts in both directions."
As we write this week's column (at mid-day Friday) the bears
crash hopes appear to have again gone up in flames (no big
surprise there!), as the market appears to be headed for a
re-test of the 8/25 high at a minimum, and quite possibly a
trip to new highs. All of this week's fretting over the
jobs report turned out to be just another bear trap, and it
appears that the "meat grinder" market may be churning out
bear burgers as the special of the month.
Last week week we told you that our cycle work called for a
low in the 9/2 +/- 2 trading day timeframe.
[Bill's call was phenomenal on this. - Ed.]
The SPX made it's intraday low this week on 9/2, and thanks to a bullish
jobs report has risen nearly 4% off that low as of mid-day
Friday.
Our cycle work now points up strongly into 9/27 +/-
3 trading days, with a minor cycle high due 9/14 +/- 2 trading days.
Last week we targeted a -50 reading on the McClellan
Oscillator, and T-Bonds above 6% as important thresholds
for the bullish case. The McClellan flirted with a
breakdown below the -50 level all week, with borderline
readings of -53 and -53 on Monday and Tuesday, and then a
fakeout breakdown to -63 on Thursday. At time of writing,
breadth has bounced back impressively on Friday, with
advancers leading decliners by a whopping 4 to 1 margin (a
bullish breadth thrust), and thus the McClellan should also
bounce powerfully to the upside at Friday's close, negating
Thursday's fakeout move. The T-Bond has also rallied back
impressively Friday, with the yield dropping back towards
the psychologically important 6.0% level. If the yield can
close this week back below 6.0% (at 6.02% at time of
writing), that would bolster the bullish scenario greatly.
So, with the bears September crash scenario out the window
(as we suggested it would be in last week's column), what
should we expect the rest of this month?
Despite last weeks shakeout attempts, the bullish scenario
still has several factors in it's favor. For one, our cycle
work suggests that the market should rally into 9/27 +/- 3
trading days. Also, the post labor day period should see
volume begin to pick up as the big players return from the
summer vacation period, which should favor bulls.
Seasonality will also be favorable during the 9/11-9/20
time period according to the "buy on Rosh Hashanah, sell on
Yom Kippur" rule, coupled with the positive expiration week
bias. And then finally we get end-of-quarter "window
dressing" into month-end, as the boyz pump stocks up to
ensure their quarterly bonuses.
Also, sentiment data show room for plenty of rally here, as
bearishness extremes appear to have been reached, with
TRIN-5 at the most oversold level of this year, and an
extremely high CBOE total put/call ratio of .98 registered
on Wednesday 9/1. Furthermore, "smart money" indicators are
also bullish, with the latest COT report showing the
commercials maintaining a large net long position in S&P
futures.
So, we are inclined to favor the long side of the market
over the short side this month, as the most bearish outcome
we would expect this month would be a sideways trading
range, with the most bullish outcome being a blow-off rally
to new highs.
We concluded last week that it was not the
time to be short or in puts, and today's massive short
squeeze supports that conclusion.
To be sure, the time will soon come when this extremely
overvalued market will collapse under it's own weight.
However, our analysis tells us that time is not yet here,
and is not likely to arrive until 9/27 +/- 3 trading days
at the earliest.
In the meantime a re-test of the 8/25 high
appears to be a shoe-in, with an upside breakout to new
highs looking more and more likely, especially given
today's bullish "island reversal" pattern in the S&P
futures."
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