Sunday, January 3, 2016

Last update, I posted that a moderate bearish sentiment indicated a possible 4-5% rally into January and we got a 4% rally from SPX 2005 to 2082 then pulled back to 2044 to end the year.  It is interesting that the year-end pullback lowered the bar for the "January indicator" where a positive first week and month indicates a positive year.  Now this can be accomplished with closes over SPX 2045.  I do expect a positive start to the year followed by a mid-month pullback, then a rally into the FOMC meeting Jan 27-8 with chatter about dovish language to make rate future hikes "data-dependent".

Sentiment  charts for this week include SPXU/UPRO, Composite#2, and DUST/NUGT.  I am starting to really like the short/long ETF indicators due to their effectiveness as well as simplicity and ease of understanding and will be adding several others in the next few weeks.

First the SPXU/UPRO ETF.  Here, the bearish sentiment has fallen rapidly from a moderate bearish level (bullish) to an extremely low level (bearish).

.The Composite#2 (P/C,VXX Vol,VXV/VIX) has also shown a sharp decline in bearish sentiment, but not as extreme as the SPXU/UPRO ETF.

 The DUST/NUGT sentiment indicator has shown the biggest surprise as bearish sentiment has fallen below the mean, indicating a weak sell signal.

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