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Figas... veio mesmo a calhar...tks

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FRIDAY a.m.
August 1, 2003




Exhaustion
by David Nichols

The market looks like it's finally out of gas on the upside. Yesterday the turbo-boost button was pushed off some favorable economic numbers in the morning, but the propellant ran out late in the day.

That lack of propellant is directly related to a lack of bearish bets --and more specifically, a lack of fresh bearish bets. The bears are all done fighting this uptrend. My intra-day monitoring of the options market showed that yesterday speculators were very quick to jump on the good news, yet ended up disappointed.

So now the exhaustion scenario I've been writing about is ready to play out. The market has been "clothes-lining" itself in tightly, and a resolution is at hand. Yesterday looked like a solid break to the upside, but the swift afternoon fade leaves an ominous-looking long tail above the clothes-line.



The 1000 level on the S&P 500 continues to bring out the sellers. Out of the last 9 weeks of trading, the SPX has been above 1000 during 7 of those weeks -- but has failed to close above 1000 even once.

From the BIG picture perspective, this trouble around SPX 1000 is not too surprising. Pulling back the periscope to the monthly chart, we can see this level is the 50% mark of the massive bull rally from 1995.




The Volatility Index (VIX) is starting to move up. This is a sign that the momentum could be -- repeat, could be -- moving back towards rising fear. We've had so many false starts in this department over the last few months that nobody is paying attention anymore, watching for this crucial indication of a major sentiment shift. But a break below the "clothes-line" on the SPX above --accompanied by a solid up white daily candle on the VIX -- would be a signal that the bulls are scrambling to liquidate longs, and this would likely just be the first wave of such a momentum move.



I'd like to make one more point about momentum moves. They look and feel great while they're happening -- and anybody who expresses skepticism looks like he just "doesn't get it" -- but the aftermath of a lopsided sentiment move can be very, very painful for the crowd. Exhibit A is the current action in bonds. The on-going bond rout is almost beyond comprehension at this point.



So when everybody believes in a certain scenario -- whether it's "the Fed's going to buy the long-end of the yield curve to fight deflation" (a self-propagated Fed rumor which Greenspan recently recanted, precipitating the bond sell-off)... or "the economic recovery is underway" ... or "stocks are never down 4 years in a row" or whatever -- then look out below when disappointment hits.

There is definitely a major sentiment imbalance in equities, with far too many bulls with their chips already down on the table. The key question is how they will handle the inevitable disappointments coming from an economy with modest growth prospects, at best; and disaster potential, at worst.

Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: Rose 2.5 points to 4% full of negative sentiment.

SHORT-TERM: Weak decline phase.

MID-TERM: Progressed 1 point to 62% on the advance side with 0 confidence.

LONG-TERM: Unchanged at a neutral 97/3 with 0 confidence.

BOTTOM LINE: We are seeing a slight rise in negative sentiment, but we're still in an extremely complacent area relative to the past year's action. The MOMENTUM of sentiment remains essentially stalled, which means we have no important signal yet (as should be clear from our double-zero confidence readings).