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Technical Update: Investors Turn Firmly Bullish!

  • Written by Syndicated Publisher 59 Comments59 Comments Comments
    November 11, 2011

    Yes I know stocks were higher. That has to be one of if not the weakest advances I have seen. Tons of divergences, asset classes going the other direction. Smelled more like investors unloading anything they could to dip buyers and raising cash. Equities continue to remain rich relative to numerous asset classes as dip buyers continue to be in risk on mode.

    Interesting to note the large drop in NYSE short interest the past few weeks and the jump in investor sentiment with bulls at 45% to bears 25% (details in Friday’s Morning Brief) while margin debt remains at September 2008 levels. Sentiment seems rather extreme here and investors willing to give central planners the benefit of the doubt.

    Few additional points to make and then a bunch of charts.

    An interesting piece of news today was reported by Zero Hedge (found here) regarding a German behind the scenes discussion to alter the EU treaty and allow member states to be removed from the monetary side of the EU. Language over the past 24 hours appears to have gone from voluntary to involuntary meaning “we reserve the right to boot you at our discretion.”

    The bond market is closed on Friday yet equities are open. If history is any indication of future performance it is quite possible equities could experience a very low volume melt up. Just a friendly reminder to those trading intraday.

    Apple (AAPL)

    Sold off very hard today in heavy volume. Notice the bear flag that failed, failed the backtest and now taking out support at ease. Leaders lead and the most widely owned and possibly highly leveraged stock is not leading markets higher. It’s convenient to blame the selloff on a rare earnings miss. To me it seems more like people are raising cash.

    If and this is a big if AAPL sells off for a few days margin calls may become a factor causing further weakness.


    Failed bear flag and not much in terms of support other than the bottom of the channel it has traded within since May.


    Failed bear flag and working on entering back into the channel it traded within previously. 200MA failed multiple back tests as well.

    Bank Of America (BAC)

    Are investors pricing in the next big event? After some wild rides I have to imagine that most financials have been squeezed of weak handed shorts. The result is the fall could be rather epic with few if any bids coming in right away. Some “hedge fund think tanks” have labeled BAC a “terminal short.” Putting the estimated value of equity at zero.

    Few Random Divergences

    There is no shortage of asset classes that point towards the indices being rather rich. Below are a few more that put current price levels in perspective relative to other securities. All charts are six month daily.

    SPX Mid Cap 400

    Up half of the SPX today.

    10 Year Yield (TNX)

    This chart should scare anyone long

    Bottom Line

    I like being short here. Everyone seems to think that everyone is in fact bearish but changes in short interest and sentiment does not support that. Perhaps many are long and simply believe markets are headed lower. That’s a lot different than everyone short and thinking markets are headed lower.

    To admit you are short here is like admitting you do in fact have that velvet Elvis poster hanging up in your parents basement where you currently reside (apologies to those whose lives I may have just described to a T).

    If in fact this market is going to move lower it will not be an easy ride. There will be plenty of times where your thesis is tested. Consider today just one of those days. Read behind the headlines though of “equities were higher.” The details don’t look so good today.

    For all those veterans out there “Thank You” and enjoy your day on Friday

    Images: Flickr (licence attribution)

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