On Wednesday, the S&P 500 was virtually unchanged (with a gain of only 0.02%). Breadth was negative (by a 4:3 ratio) for the third day in a row and downside volume outstripped upside volume by a 2:1 margin. (However, breadth for the S&P smallcap index was positive, once again bucking the trend.) Total volume fell slightly and remains at very low levels. The daily Coppock Curve has a bullish bias for 16 of the 24 S&P industry groups.
The media was all lathered up that Investors Intelligence reported only 15.6% bears, which is the lowest such reading since 1987. But as a traffic reporter might say after an accident has been cleared, “the damage has been done.” We say that because, as with any sentiment indicator, we tend to look for divergences as an indication of a potential top. The 10-week bull/bear ratio broke out to a new rally high four weeks ago, so this week’s numbers just added to an already existing condition. The overbought readings do imply that a pullback is warranted, but the “good overbought” confirming condition suggest that a pullback will likely be followed by at least a test of the previous (pre-pullback) highs. In the end, this week’s II numbers provided no new information.
Case-Shiller's Long Term Momentum Condition
On Tuesday, the S&P/Case-Shiller Home Price indexes for October were released. Only seven of the 20 markets posted month-to-month gains. The media hopped on this as a sign that the economy is not as robust as thought and/or that rising interest rates were dampening the enthusiasm of potential home buyers. In our view, momentum is oversold and improving for all 20 markets and significant deteriorating conditions are not positioned to set in until the 3rd or 4th quarter of 2010. Thus, we are inclined to give this “B” wave rally in house prices the benefit of the doubt for a while longer.
We wish all of our subscribers and readers a happy and healthy New Year. We’ll see you in 2010.
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