Overall Perspective
- At
the end of September the prevailing panic atmosphere could no longer
drive down stocks, commodities and corporate bonds. Some of our technical
work was indicating a large and growing number of individual stocks
registering very oversold conditions. The
gold/silver ratio which had signaled the pending decline in April
resisted going higher.
- The
conclusion was that choppy, but rising action for orthodox investments
could run to a good high at around January.
- For
the past few weeks we have been reviewing the question "Are we
there yet?"
- Yes
we are - and then some!
Credit Markets
- Excess
is again evident in the credit markets and a couple weeks ago an
outstanding performer--municipal bonds (MUB) - registered an Upside
Exhaustion. As the reversal comes in, we've thought that it would
represent the potential reversal in bullishness for most spread
products.
- This
would include corporate and sub-prime mortgage bonds.
- A few
days ago the MUB dropped a couple of points from 113.67 to 112.50. This
is the sharpest plunge since the one in October 2010 that led to the
"Muni-panic" that ended in January 2011.
- Monday's
Financial Times headline indicated that bullish sentiment is rampant
with "Record Global Sales of Junk Bonds".
Stock Markets
Checklist for a
Top
- Is it
up when it should be?
Yes.
- Are
there signs of enthusiasm?
The AAII ratio of bulls and bears has
soared to 74 and the Rydex Bull/Bear ratio is
almost at a new record high (chart follows). This confirms Ross's work on the
VIX reviewed in the ChartWorks "Complacency
Abounds Oh-Oh!" of January 24th.
Courtesy of www.SentimenTrader.com
Momentum is also very high as the RSI
on the S&P reached 75 - the highest since February 2011.
The "Sequential Sell"
pattern has completed.
Ross notes that the number of
individual stocks registering Upside Exhaustions is soaring, typical of an
important top. The gold/silver ratio has been unable to break below 50.
Currencies
·
The US dollar is in a pattern that can lead to an
outstanding rally. The January 27th ChartWorks "Pulling
Back To A Buy Zone" is the latest update.
·
A significant rally in the dollar would likely be
associated with increasing concerns in the credit markets. Perhaps the season
when "fixes" by desperate policymakers seem to be working is
ending.
Bob Hoye
Institutional Advisors
The opinions in this report
are solely those of the author. The information herein was obtained from various
sources; however we do not guarantee its accuracy or completeness. This
research report is prepared for general circulation and is circulated for
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Copyright
© 2003-2008 Bob Hoye
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