Market Sentiment
Sunday, 05/04/2003
Out In A Cheer
by James Brown
All those traders who were holding their breath must have released it and when they did it came out in a cheer. No doubt some market watchers are perplexed that a rally occurred when the nation's unemployment rate number rose to six percent with another 48,000 jobs lost last month. Well, nowadays instead of corporate earnings whisper numbers we have to contend with economic report whisper numbers, which shouldn't be a surprise given the total focus on the economy.
The employment report's -48,000 jobs was a lot less than the whisper number of -150,000 jobs. Creating the one-two punch that has temporarily stunned the bears was a surprise in the recent factory orders. Economists were expecting 1.2% growth and the result was +2.2%. Good news indeed. If you don't want to believe it's the economy then maybe America was feeling a little optimistic after George Bush's almost perfectly scripted address to the nation from the deck of a moving aircraft carrier on Thursday night.
Yet it wasn't just the U.S. markets that rallied. Sure, the Dow Jones Industrials jumped 128 points to breakthrough resistance at 8525 and close at 8582. Sure the NASDAQ Composite rose 30 points or 2% to close at 1502, which happens to be the first close over 1500 in almost a year. Sure the NDX rose 23 points or 2% to 1136 and the small-cap Russell 2000 rose 8.8 points or 2.2% to breakthrough resistance at 400 and close at 407. Even the S&P 500 rose 1.5% to 930 producing a confident close over the pivotal 920 area. But the global markets cheered as well. The NIKKEI 225 index jumped almost 44 points to 7907. The Hang Seng rallied 90.9 points to 8808 and the Singapore Strait Times added 17.8 to 1299. Across the pond the FTSE 100 rose 72 points or 1.87% to 3952 and the German DAX 30 ended 44 points higher or +1.49% to 2986.
The U.S. market internals echo this exceedingly strong bullish optimism. Advancing stocks over decliners were nearly 22 to 6 on the NYSE and 22 to 8 on the NASDAQ. New 52-week highs continue to crush new 52-week lows at 388 to 41, respectively. Up volume beat down volume by more than 5 to 1 on the NYSE and more than 7.5 to 1 on the NASDAQ. It's tough to be a bear in this market.
The strength of the market is also showing up in the year-to-date numbers. The Industrials are up 2.9% YTD. The S&P 500 is up 5.7% YTD. The Russell 2000 (RUT) is up 6.4% YTD. The NASDAQ Composite is up 12.5% YTD.
The perception on Friday, at least at the moment, is one of hope. People are feeling hopeful that things will finally improve. Wall Street is hopeful that corporations have turned the earnings corner and are working their way back to growth. Economists are hopeful that the much lower oil prices and a low interest rate environment will reduce costs and stimulate businesses. The taxpayer is hopeful that the President will actually be able to accomplish some form of tax relief that will benefit them immediately. The investor is hopeful that the recent SEC-Wall Street settlement will have brokerage firms actually telling the truth. Finally, the average citizen is hopeful that maybe, just maybe, after three years of looking for it, we'll see a second half recovery.
That's the good news. Now for the less than good news. The markets can't keep this pace up forever. It's a game of give and take, of ebb and flow. The money has been flowing into stocks and it's going to be time to ebb soon. Consider these indicators. The 5-day moving average of the ARMS index is at 0.86. Traditionally, ARMS watchers translate moves to 0.85 as bearish. Keep in mind that these signals tend to be few and far between and usually a little bit early. The bullish percent indicators are looking a little top heavy. The NASDAQ-100 (NDX) has seen the rally push its bullish percent number to 73. The 70 and above level is considered overbought. Jeff Bailey likes to compare the bullish percent indicator as a football field. When the bulls get the reading to 70, they have "scored". Well, what happens after a team scores? They kick the ball to the other team. Now this indicator can go higher but I'd be watching for "ball" to change hands sooner rather than later. What might give us some time is the S&P 100 bullish percent is only at 61 and the S&P 500 bullish percent is at 59. They don't have to get to 70 before reversing. Bears can steal the ball at any time but for the S&P indices we can still hope for the bulls to "score".
Needless to say the VIX and VXN are very low and continue to drop. Unfortunately, both are turning from big yellow flags of caution to big red flags of warning for the bulls. Also of note is the equity-only put-to-call ratio. As of Friday's close it dropped to 0.51. Jon Levinson, our own prolific MarketMonitor commentator, would consider that a bearish sentiment indicator.
Now I fully believe in trading what you see and not what you believe, thus the overabundance of calls on the play list. However, given the extremely bullish market overtones I continue to encourage strong risk management and vigilant stop loss monitoring. Consider these numbers over the weekend. From the March 2003 lows, the Industrials are up 13.6%. The S&P 500 is up 15.6%. The NASDAQ Composite is up 19.8%. While short-term the markets looks ready to go higher, there's a lot of profit on the table and traders don't like to leave it there. Next week it will be interesting to look back and see what the fund flow numbers were for this week.
asianinvestoronline.com |
