ISA Daily Trade Navigator for 8/31/05
Short-Term Sentiment:
Negative.
Intermediate-Term Sentiment:
Positive.
Intermediate-term Trend:
Negative.
Short-term (one-day) Signal:
Sell--don't stay too long. (Last signal, Buy--with extreme care due to news volatility 8-29).
Ideal Portfolio:
100% Money Market. Looking to Buy slightly better sentiment or a turn.
The message board sentiment poll has Bulls at 33% and Bears at 50%. This is somewhat Bearish since this group is more often than not right, but Bearish readings north of 50% suggest excessive sentiment. The Actual Position Poll has 35% at least partially long, and 48% at least partially short. There are 22.58% fully short. This is on better participation, and it shows an goodly number of Bears. Fully short Bears above 20% is a Bullish sign. I think it's OK to buy for a scalp or to probe long, but keep some powder dry because the trend is still down.
The equity P/C ratio rose to 0.62 which is neutral. I'd still like to see some higher readings here. The OEX PC ratio was flat at 1.28, which is neutral. The $-weighted P/C rose to 0.75, which is better. The CBOE 10-day P/C ratio was flat at 1.01 which is solidly in Buy territory, suggesting that we are closing on a low (or that it's already in). All we really need is a turn in the trend, or a couple excessive readings to start buying. We probably have more weakness coming before a sustained rally, but you never know. The news makes for emotional and choppy trading.
LowRisk reported 36% (up from 12%) Bulls and Bears at 42% (down from 61%). This is a quick shift back into neutral territory. I don't think that the prior Buy, however, really saw enough strength. We are probably going to see a rally of some sort on top of yesterdays, but it looks like we may have to scare folks a bit first. Last week, AAII reported 36.14% (well up from 29.29%) Bulls and 31.33% (well down from 40.40%) Bears. This is far too Bullish, far too quickly. We could have more near-term weakness, though these tools are generally more long term. Investors Intelligence reported a drop to 56.8% (vs. 57.3%) Bulls, and a rise to 25% (vs. 22.5%) Bears. This is about what you'd expect, and getting better...slowly.
The Rydex Dynamic Bull Funds saw $47MM of inflows, while the Dynamic Bear Funds had outflows of $39MM. Overall, the fund shifts were less Bullish, but Bullish they were (save for small shifts in OTC and Artos) on a down day and a strong reversal. Does that show too much acceptance? Yes. The Rydex Speculation Oscillator showed a huge Bullish shift on a down day. That's a Sell, but it's important to note that outside of a massive Venture-to-Velocity shift, the Bullishness was much more muted. Don't get too Beared up. Longer-term, we've seen some pretty serious Bearish shifts over the past couple of weeks, and we have a set up, should the trend turn, for an intermediate-term advice. We have to be on the lookout for a low at any time--but I'm not sure it's THE low, yet. I suspect that we need to scare these early Bulls.
The Senticator is neutral. Thanks to the hurricane, we have an emotionally volatile picture. I'm seeing real combativeness and plenty of Bearishness on the message boards. That's often a sign of a more important turn, but other measures suggest that it won't be a clean affair. The Rydex data suggest that folks are probably expecting another post-London type rally and are getting long for it. They'll probably be punished for getting so Bullish so quickly in a down trend. I think we'll see more weakness. Do remember that we have a set up for an intermediate-term rally, but the $-weighted P/C ratio was a bit ambiguous with only one day of a Buy signal immediately followed by a Sell. I'd REALLY like to see a couple of days over 1.0 on that measure and some excessive equity P/C ratios too. Despite that, we can probe long, if we are careful and nimble, but near term, some selling seems to be in the cards first.
Remember this: Often, right at the lows, even the smartest traders will be thinking that the low is still out a few days. Don't get hung up on a preconceived notion. There will be a reason why we won't want to believe the set up. People sell at market lows for short-term reasons.
The Mechanical model will sit flat. The Subjective model will go long 1/2 on a limit of 119.75.
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Ideal ETF Portfolio (tracking portfolio):
100% Money Market
We are open to going long and may put a small position on, on weakness. Watch for an update.
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Mark Young
Editor
1-800-769-6980
