Sunday, February 21, 2016

Not Much Change from Last Week

Last week I reported mixed sentiment and this week we have similar results with the SPX advancing from 1865 to 1915.  Looking at all sixteen indicators, last weeks score was 6/16 with 9 positive, 4 neutral and 3 negative. This week the score has dropped to 4/16 with 8 positive, 4 neutral and 4 negative as the overbought/oversold indicator(SPXa50r/SPXa150r) moved to a negative.

The big news is for the HUI (DUST/NUGT) as bearish sentiment dropped to a low extreme as the chart below shows   It is interesting that Hulberts Digest Newsletter Survey just reported the same results. However, I am less bearish than Hulbert due to the large buildup of high bearish sentiment the last half of 2015.  The most likely scenario is a 3 to 6 month trading range, aka the first half of 2014, until volatility subsides in the stock market.  Unlike most, I expect a fairly positive second half of the year for stocks after a summer swoon, as Wall Street pulls out all stops to protect the $100 million plus investment in the Clinton campaign to preserve the status quo.

The rest of this post is an update to the Students Trifecta model where I am replacing the BPSPX/CPCE indicator with the original TRIN variable and BPSPX (TRIN/BPSPX).  TRIN does not fit well in my model as most use log tranforms so I had to come up with another approach.

Below is the TRIN/BPSPX, here I found that the BPSPX improves the cyclicality.

The revised Students Trifecta ( VXV/VIX, SPXA50R/SPXA150R, and TRIN/BPSPX).

Short term outlook.

Looking for a drift lower into early-mid Mar, possible IHS at SPX 1820-30. Fed announces second rate hike, then pauses until after election plus ECB additional QE. Stocks stage strong rally, SPX 2000+ Apr-May. Then crash down into 1700s in summer swoon, aka 1957, 1969.

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