SENTIMENT NUMBERS

Overview

Investors generally tend to be a bit more optimistic at the start of a New Year. Additionally, with the averages rallying sharply for the first session of 2010, we did see a nice jump in the bulls this week. Their number again reached their highest level since Dec-07, when they were falling from 62.0% that October. Most of the new bulls came from the correction camp, as we have been anticipating but there was also a small dip in the bears.

The bears hold at the lowest reading since Apr-87, while the correction data was recently a high since Mar-92. Another concern is that some of the correction group are throwing off prior expressions of caution and expressing their optimism with a roar. Too much bullishness is bad for higher market levels as it suggests fully invested positions.

The bulls were up more than 5% to 53.4% from 48.3% a week ago. Again, that is a more than two-year high and up significantly from the Oct-08 low of 22.2%. That was the fewest bulls since 1988 and a positive signal of bottoming action. We now see excess bullishness that is approaching the danger levels of 55%-60%.

The bears were down to 15.9% from 16.9% last issue, close to the low of two weeks ago at 15.6%. That was the fewest bears since we counted 14.5% almost 23-years ago. At the Oct-07 index highs the bears fell to 19.6%. A year later their number reached 54.4%, a 14-year high.

Advisors classified as correction fell to 30.7% from 34.8%. This group is mostly bullish but they expect an intervening market retreat before the rally begins. They look to buy on dips. Advisors often shift from bearish to correction before they are ready to make a bullish commitment and vice versa. Their early December reading of 35.1% was their highest since Mar-92.

The difference between the bulls and bears was a negative 37.5%, up from 31.4% a week ago. That is the widest spread since late 2007 when it was 42%. It hit -32.2% in Oct-08.

The 10-week average of the bulls over the bears [eliminating the correction] hit 73.5%. That is a high since Mar-04 and also a signal of upcoming danger.

Bullish Theme

We regard the stock market as reasonably priced based on our earnings outlook. The economic recovery process remains on track and therefore we are raising our 2010 S&P 500 operating earnings estimate to $74.50 (from $73). Based on this earnings estimate and our fair value price/earnings ratio of 16 to 17 times operating earnings, we estimate upside potential for the S&P 500 Index in the 1200 to 1260 range going forward. Progress beyond that range will be a function of the durability of the economic recovery and the ability of the Federal Reserve to successfully manage monetary policy. As we enter 2010 the S&P 500 is trading at 15.0 times our 2010 operating earnings estimate. (5-Jan-10)
Bob Brinkers Marketimer 10789 Bradford Rd, # 210 Littleton, CO 80127 www.bobbrinker.com

Stock markets around the globe ended the first week of the new decade with decent gains as investors appeared to shrug off the news released in the December U.S, payrolls report. More than likely investors had their focus on the upcoming earnings season as it is expected that most corporations will show profit increases for the first time since the second quarter of 2007. According to Standard & Poors, profit at large U.S, companies is expected to rise 184% in the fourth quarter, breaking a string of nine quarters of profit declines. The jobs report seemingly ignored by Wall Street stated that job losses continued in December continued in December and the U.S. unemployment rate remained at 10%. Retailers were joyful this holiday season as they experienced their best month in two years, as they became more efficient and implemented tighter inventory controls.

Currently, the momentum is definitely pointed higher as both the NASDAQ and the S&P 500 closed at 52 week highs Friday with a series of higher lows and higher highs marking a solid uptrend over the past nine months. The S&P 500 will start to encounter resistance between 1200 and 1250, which is the area that previously provided support in 2008. This is 5.9% higher from current levels. Expect a correction or at least a consolidation of some sort when it reaches those levels. It is due for one! (9-Jan-10)

Harland R. Hendricksons Market Trend Follower, Edmonton AB Canada www.markettrendfollower.com

Bearish Theme

The US Presidential Election Cycle in the Stock Market: The first and second years of Presidential term have the worst on record for investors. In the last 87 years, the S&P has been down 28 years, 19 of those declining years came in the first half of a Presidential term.

Rebounding from a Crash low in the quarter when he was sworn in, with trillions of liquidity, stimulus & multi bailouts thrown into the banking system, the remaining three quarters of his Post Election year saw a remarkable recovery ending with a strongly positive gain for the year.

2010 is his Mid Term year, the worst stock market year of the Presidential Term historically. Where the Post Election Year was up, only the second terms of Bush-43, Clinton, Reagan, Truman and Coolidge avoided Mid-Term Year declines. With the Obama & Democrat polls melting down as his first year winds down, the Nov 10 Mid-Term elections may break the Democrat control of both houses of Congress. (6-Jan-10)

Ian McAvitys Deliberations on World Markets, POB 182, Adelaide St. Station Toronto, ON M5C 2J1 Canada (416-964-1359)


As I see it, the peaks remained high - in the 35-40 range - during the market advances of 2003-2007. So such a high spread might suggest a pullback but not necessarily a crash.