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Santa. … Hello! Are you there?
MONDAY - Dec. 29, 2008
by Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Dr.Faessel@onthemar.com
So far there’s been no sighting of the sleigh and reindeer. Could Rudolph be waylaid by the sub arctic cold front or is the Santa crew in the sickbay (or possibly in rehab) nursing their losses like the rest of the planet?
Price has been rejected by short term price and declining tops resistance / (supply) in the S&P 500 (SPX) at 895 and 905. But, importantly for the market the rising lows in the (SPX) and the (NDX) have held. On Friday the S&P 500 (SPX) closed at 872 - key resistance / support 50-day moving average currently is at (SPX) 891.
The most important clash will occur at the key (SPX) resistance at 917 to 920. TICK resistance remains at the (SPX) 910 zone when a (super high) plus TICK of 1406 was posted.
The market really needs to get above these resistance levels and that could set up a Santa inspired momentum push to the gnarly resistance level at (SPX) 1000.
The declining 200-day moving average is still way up there at (SPX) 1190.
There is recent and feeble price support at just below S&P 500 (SPX) at 860. Lots of deeper price support is at 850, 840 and 820.
An observation of note: due to the new Fed funds rate at near zero, financial institutions will be able to rejigger / reset there asset backed portfolios of bonds and mortgages to more typical levels, setting up what could be big percentage earnings increases in the next reporting period.
The Treasury 10-Year note was 2.14% as the yield fell 5 basis points.
Improvement continues in the “will we ever get out of this mess” equation.
The TED Spread has now narrowed to 1.41% points. The highs (spread) of the cycle were posted in October at 4.64 %.
The Ted Spread is a gauge of bank cash availability, which measures the difference between what the U.S. government and banks pay for 3-month loans,. This suggests that there is now increasing speculation that U.S. borrowing costs at near zero with promises that the government cash will help unfreeze credit.
Today the LIBOR the London Interbank Offered Rate remained unchanged for the third day at 1.47%. While that remains the lowest post of the cycle (since we have reversed off the high of 5.18%) we are not near the “target” number yet. The Libor (3-month) is still 122 basis points above the Fed’s target. when the crisis began in August 2007 the LIBOR was at 12 basis points.
LIBOR is the benchmark for $360 trillion of financial products worldwide, is set by a panel of banks in a daily survey by the British Bankers' Association before noon in London. Money markets remain dysfunctional despite increased central bank intermediation and state guarantees but, LIBOR says that the backdrop is improving.
Last week the BARRON’s Confidence Index was 45.6. The prior week it posted the all time lowest post ever of 45.2. For comparison purposes one year ago it was 79.5. The significance of these recent all-time low number is that credit-givers have just registered the worst ever outlook for the less than prime paper.
Assessment of how the bond markets $ trillions are allocated and what “they” may herald is the focus of all the major players. Barron's magazine follows this key data point in the form of a Confidence Index* each week. The Confidence Index is the High-grade bond index divided by the Intermediate grade. Until the spreads narrow do not expect the market to really turn. In good times the number is in the mid 80s.
Overbought / oversold indicators (Arms and McClellan) are ticking again into the overbought zone but have moved off the highs of the cycle.
Contrary Indicators and longer term surveys of negative sentiment remain at all time high fear levels.
Shorter term sentiment measures are posting more neutral reads as the market has advanced off the lows of late November.
Last week the Consensus Index Investor sentiment survey ticked down to 26% bullish, the week before it was 29%. The lows of the fear cycle (low bullish reads) was a post of only 21% bullish a couple of months ago.
The AAII Investor sentiment survey was 29% bullish last week. The prior week it was 39.7%. AAII posted the lowest bullish read of this cycle a little more than a month ago at 24.4%. Of note: The AAII usually runs about a week behind due to the way their survey is taken.
Last week’s Market Vane survey was 40% bullish after posting a 43% the prior week. The low bullish number of the cycle was the 33% post of 12-weeks ago.
- Friday’s McClellan Oscillator (favorite overbought / oversold indictor), was an overbought plus 184. Thursday’s post was an neutral plus 92.
- The CBOE Total Exchange Volume Put / Call Ratio on Friday backed up to a 0.78. Thursday’s was 0.8 after posting 0.79 last Wednesday.
- Friday’s (VIX) had a low interday tick of 42.920 and closed at 43.38.
The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993 the (VIX) has been considered by many to be the world's premier barometer of investor sentiment and market volatility.
The (VIX) measures the cost of using options as insurance against S&P 500 declines.
Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Dr.Faessel@onthemar.com
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