Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Three Downside Warning Signs


Doesn't the market always go up in December?

Much of the long-term sentiment data I watch isn't at an optimistic extreme yet, and really hasn't been for most of the past six months other than isolated weeks that were quickly corrected.

Heading into this week, though, there are a few warning signs popping up that make me think it's going to be skewed to the downside.

1. Reaction to the Nonfarm Payroll Report

Of the 10 times since 2000 that the S&P has gapped up +1% on NFP day, only one time did it close the next week in positive territory, and overall its average return was -2.1%. We also have negative seasonality for the coming week (negative seasonality? In December? Gasp!). From the fourth through tenth trading days of December, the S&P has managed a gain only 43% of the time since 1928

2. "Smart Money" Selling TechSpeculators continue to like the Nasdaq 100. Really, really like it.

The chart below shows commercial hedger positions in Nasdaq 100 futures, but by definition, large and small speculators are taking the other side of the trade. The bottom like is that "smart money" hedgers are net short to one of the most extreme degrees in the history of this data (going back to 2000).

The other three weeks highlighted on the chart are 12/01/04, 12/05/05 and 10/15/07.

3. "Dumb money" Buying Stocks

The latest weekly data from the options markets shows that the smallest of traders -- those trading 10 contracts or less at a time -- have remained quite bullish for the past two weeks.

This is the first time since the March low that we've seen two consecutive weeks with such an extreme ratio. The other four times the ratio below hit its upper red trading band, the S&P 500 was about to enter a short-term correction.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos