The walking dead are back!

The Walking Dead is a television show produced by AMC—owned by Disney Corp (a stock ValueTrend owns). It’s a zombie show – and I believe the zombies portrayed in the show accurately depict similar mindlessness that “the herd” (i.e. most investors) portray when viewing the market. Back in March and April, the crowd was optimistic. Well – the zombies (“dumb money”) were optimistic – not so much for the institutional and sophisticated money side of the market (“smart money”).  By the end of August after an 11% decline on the S&P500—this pattern had reversed.  Smart money was at record levels of confidence, and dumb money was selling first, asking questions later. The zombies showed us what NOT to do..

zombie2

Right now, the  www.sentimentrader.com site shows us that smart money has moved into a fairly pessimistic viewpoint right now—although not outright bearish. Conversely, now that the markets are nearly back to their spring highs, the retail investor/dumb money is back in full force. Sentimentrader also notes some concerns surrounding newly optimistic Wall Street market targets and option premiums. All in, it would appear that the zombie herd is back – and that, like in the Walking Dead series, is not such a great thing. Note the 67% confidence level of dumb money vs. the 36% confidence level of the smart traders. It’s not as bad as it was in March, as you can see on the chart, but it’s getting frothy out there. How quickly things can change!

Smart dumb $

It is my belief that the S&P will eventually blow through its old highs of around 2130. But after such a significant ride from the double-bottom low of September, it is time for a pause. In fact – that wall of resistance at around 2130 may inspire such a pattern, which may lead into a new level of sector rotation as the market struggles to break it. For this reason, I recently took a little off of the table (10% cash) in the ValueTrend Managed Equity platform. The chart below illustrates our strategic buy and sell trades so far this year, and the patterns that we have identified as significant:

S&P

The chart below shows us the near termed indicators I watch. Shorter termed momentum oscillators RSI and Stochastics are toppy, while MACD continues to put in new highs – with a slight divergence in its histogram. Moneyflow (bottom pane) is bullish, but the moneyflow momentum oscillator (top pane) is rounding over. All in, it looks like a near termed correction, followed by a pause at or near the resistance point noted above (2130) may be in the cards. My suggestion is watch for the next number of weeks to demonstrate some new leadership or newly emerging sectors/ stocks. This will be a bullish sign, one that may force the S&P to blow through its current ceiling. Meanwhile, I am looking for some opportunities to appear within a potential pullback to deploy that bit of cash I raised recently.

S&P timing

 

Keith on BNN’s 1:00pm MarketCall show tomorrow: Thursday November 5, 2015

I haven’t done an afternoon show in a while, so this should be fun.

 Tune in to BNN to catch me live on BNN’s premier call-in show, when you can ask my technical opinion on the stocks you hold.

Call in with questions during the show’s live taping between 1:00 and 2:00 pm. The toll free number for questions is 1 – 855 – 326 6266.

Nov 2012 sitting small

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8 Comments

  • Hello Keith,

    Looking forward to seeing you in the afternoon Thursday on BNN. That being said, I’m curious if you have any specific sectors that you believe will be hit the hardest if a modest pullback does happen?

    Thanks
    Cody

    Reply
    • Hard to say–possibly technology and other higher beta plays. But-thats just a guess– I will wait to see and play what looks attractive–buy on a dip.

      Reply
  • If you can put a bit more meat on your projections would be appreciative. You state:
    “it looks like a near termed correction”. How much correction from 2102 close we are at today? If only a couple of percentage points on the S&P 500, then for longer term traders who wish to hold till year end it may not be worth cycling out. You only cycled 10% implying you are not anticipating a huge swing.

    “followed by a pause at or near the resistance point noted above (2130)” So after a small?? correction then bounce back to 2130 ish and pause for some time. That’s only 1% higher than today.

    ” This will be a bullish sign, one that may force the S&P to blow through its current ceiling.” Push through 2130 before year end? January often has a correction so my thinking is hold the S&P 500 ETF until YE then sell into January if the technicals suggest an overbought situation. Maybe cycle out of the S&P 500 and into the broader Russell during Dec and benefit from growth in small cap into Q1/16 as you implied might happen in your prior post.

    Your clarification and thoughts as always are appreciated.
    Daddyo

    Reply
    • I’m sometimes hesitant to provide too much guidance regarding how deep a correction goes, or high a rally goes–or the precise timing of such events–this is one of those times. If the situation is more obvious and lines up with seasonal patterns such as my sell call in April, or my buy call at the end of September–then yes, I will note the timing and potential move with more confidence.
      At this time–there are many variables–bullish and bearish. so its a more difficult call to make.
      The bearish factors were presented on the charts on this bolg–resistance, momentum being overbought, sentiment getting overly optimistic
      The bullish factors are: Seasonally the best time of the year–in fact the best months are November and December, plus the 10-20 yr historic average for secular bull markets per my long term view discussed in past blogs
      all in–the prognosis is for a pause, and I dont know how long it will take. A correction will be shallow–likely 5% or less. Thats about all I can suggest given what I see.

      Reply
  • Hi Keith,
    Do you know when you might be starting your ETF? Can you give us any details on it? Thanks.

    Reply
    • John, you are the 1,000,000th person to ask that question–congratulations, you win a prize-(not really!)
      Anyhow–I cant say for sure, but its looking a bit more promising for some time …in the new year. A few more hurdles to cross…..

      Reply
  • Hi Keith- Enjoyed Market Call today. Bought some Intel at 2PM. If the US does raise rates next month, will that push the market up or down?

    Thanks
    Randy

    Reply
    • Rising rates- so long as the Fed does it gradually, will be bullish for the market–please do a search on this blogsite under “will rising rates hurt the stock market”–I showed evidence suggesting rates up = markets up–at least at first…

      Reply

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