• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 693 days Americans Still Quitting Jobs At Record Pace
  • 695 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 698 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 701 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 709 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 713 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Trade In Counterfeit Goods Hits Half A Trillion Dollars

Trade In Counterfeit Goods Hits Half A Trillion Dollars

The counterfeit market has breached…

Tesla Struggles To Compete In European Market

Tesla Struggles To Compete In European Market

Tesla continues to catch the…

  1. Home
  2. Markets
  3. Other

A Vulnerable Market, Short-term

Earnings season is now upon us and with it comes the expectation of greater volatility as both upside and downside earnings surprises are the norm for this period. This especially holds true for the important cycle that is due to bottom later this month.

There are a couple of concerns I have with the immediate term (1-2 week) outlook. The first is the overbought nature of the market right now, as shown by the 5-day and 20-day price oscillators for the S&P 500 index (below). The 20-day oscillator is exceptionally overbought and has hit its highest reading of the year, all the more reason to exercise greater caution in the next few days.

The other concern is the latest investor sentiment survey released by AAII. The latest poll shows that 52% of investors described themselves as "bullish" compared with only 25% calling themselves "bearish." That's the biggest bull/bear disparity we've seen in a few months. Take a look at the chart showing this gap between bulls and bears.

I realize that in a bull market sentiment as well as the technical indicators can remain in an overbought position for sometimes weeks on end before the market pulls back. That could theoretically turn out to be the case this time. With an important market cycle due to bottom later this month, however, and with earnings season now underway, we could be in for a few bumps along the road before we enter the historically prosperous November-December time frame.

The NASDAQ 100 Index (NDX) keeps trending higher while the Dow has been mostly range-bound in the past few days. The lack of participation of the Dow, as well as the S&P Midcap Index (MID), the Russell 2000 (RUT) and the Semiconductor Index (SOXX), can be ascribed to the cyclical bottoming process discussed in the previous reports.

In the next couple of weeks the market will be vulnerable to negative earnings surprises until the sub-dominant interim cycle bottoms. For safety's sake, there's nothing wrong with walking a little slower until the cyclical "danger zone" has passed.

Natural Resources

The Amex Gold Bugs Index (HUI) ended Wednesday's (Oct. 10) trading session with a gain of 1.72% to close at 405.26. The XAU index closed at a new high at 176.45 for a gain of 1.74%.

The CBOE Gold Index (GOX) call/put open interest ratio is still showing more call buying than put buying among the traditionally "smart money." The GOX call/put ratio has been the key to the PM stock sector rally from its beginnings in August. It still hasn't turned bearish yet as Friday's reading of 0.23 shows a net bullish stance among the smart money traders. This shows the psychological backing of the gold stock uptrend to still be intact.

 

The Amex Oil Index (XOI) closed 1,466 on Oct. 10, and is about to challenge its previous high at the 1,500 area. There are some bullish patterns showing up in some of the leading oil sector stocks. Could the oils be gearing up to play "catch up" to the natural gas stocks?

Incidentally, the latest issue of Futures magazine was of interest to contrarian-minded traders. Guess what was on the front cover? A bear! But not just any ol' bear. This one was in reference to the energy market. Could this mean a strong fourth quarter performance for the oil/gas stocks from a contrarian standpoint? I think it could!

 

Back to homepage

Leave a comment

Leave a comment