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SP500 Futures - Check Engine Light ON ? 1508 Support level
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Another factor is the Investor Sentiment Reached February 2012 level
With the S&P 500 hitting a new bull market high (on a closing basis) in the last week, it shouldn't be too much of a surprise that bullish sentiment on the part of individual investors pullback a little.
Well that didn't last long. After topping 50% for the first time since February, bullish sentiment dropped back below 50% two weeks ago.
Even with the S&P 500 still trading near multi-year highs, individual investors are becoming increasingly bearish. According to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment dropped from 48.04% down to 42.77%. In the last two weeks, sentiment has now dropped by 9.57 percentage points which is the largest two-week decline since last July. Individuals becoming less bullish as the market hits new highs is hardly the type of behavior that would be considered overly optimistic.
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Asset reallocation of the beginning of the year, low VIX, low cash in portfolio accounts, extreme bullish sentiment, divergences on RSI for this peak compared to earlier ones are all warning signs.. All the signs are there.
The market is an a upward trend ( as shown by the graph above ) with a huge RSI divergence...
We are a the top of a big wedge on a monthly basis. ( See graph below )
And if we look at the big picture, market is trending toward what can be a major triple top for the last 20 years ... ( See graph below )
Factors to consider are starting to be negative for the SP500 til mid-march as shown by the graph below.
The market can still reach 1550/1560 zone but all the indicators are giving us a warning sign of a potential correction : we are very careful at those levels. Put a profit stop at 1508 and try to play the grinding market. If we boke and close above 1525, so the market can accelerate up to 1550/1560 zone. 1508 ( low of Feb 12 ) broken and we have finally that correction in place to target 1438 ish ( low of Jan2 ... Check the declining volume with market making new high for the past 4 days. ( See graph below )
ML Trading rule
We previously explained the obvious similarities (with stocks, bonds, and leveraged positions) with the current period in the market and the end of 2010 and start of 2011 period. Much is once again being made of the 'flows' as $18.8bn (the 3rd largest on record - since 1992) pushed into equities. Retail also bought long-only equities for the fourth straight week ($2.7bn), and $12.2bn was added via ETFs, but the significance of the flows has triggered a "sell" signal for the traders at BofAML. The last time such a sell-signal was triggered was, ironically, late January 2011 - which was followed by an 8% correction. Their Global Flow Trading Rule (based on flows breaking 0.5% of AUM) on average has led to a 5% correction in global stocks over the subsequent 4-5 weeks. Different, this time?
Price Momentum Oscillators are showing sign of market fatigue
The second panel on the chart below shows the PMO for the S&P 500 Index, which is the price index just above it. The bottom panel shows the percentage of individual S&P 500 stocks that have PMOs above the zero line.
As you can see, the indicator has recently topped at a very overbought level. In similar cases noted on the chart, half were absolute top pickers, and, while the other half announced an internal peak in strength, they arrived well ahead of the price peak. But, even though they were early, the indicator peaks in early 2011 and 2012 were ultimately followed by price declines that sent prices lower than they were when the internals peaked.
Also, here's Bank of America with a chart of their Bull & Bear Index - an amalgamation of hedge fund equity exposure, fund flows etc. It is positively screaming here, off the charts bullish, higher than 99% of the time since 2002, notes the Business Insider's Joe Weisenthal:
The Newsletters are all bullish too - the most bullish reading in 13 years! This is not good, they are always wrong at extremes last week:
US Retail Sales Chill - A Frozen US Consumer ?
Weekly retail sales reversed its prior week’s sales increase and declined by 2.5%, based on the International Council of Shopping Centers (ICSC) and Goldman Sachs Weekly Chain Store Sales Index. On a year-over-year basis, the pace of sales also softened to 2.1%, the lowest level since February 2012. ( See graph below )
Have a look at the graph below showing NYSE Margin Debt and the S&P 500. The two data sets show a correlation over 85%. It’s interesting to note the tight correlation between margin debt and stock prices in our world .