Morning Briefing, 11/27/2002

[21st Century Alert]

Title: Morning Briefing, 11/27/2002

Click Here! WEDNESDAY a.m. November 27, 2002   Yesterday the market was hit pretty hard, with accelerated selling into the close. This is not typical behavior for an uptrend, to say the least -- so we have to see how yesterday affected our new sentiment dashboard. The most noticeable change is the trend confidence in the mid-term has dropped from yesterday's 5 to the current reading of 3. The confidence in the long-term uptrend has dropped to 4. This shows that a few of our trend indicators deteriorated with yesterday's selling, but it wasn't enough to trigger a move into a downtrend. It's a warning, however. Although it may not seem intuitive at first, it is possible for the gauges to move backwards -- but only a little bit. A gauge can't move back too far without flipping into the opposite trend. Such a move backwards is a warning that the trend may be flipping over; but it may also represent more potential room to move if the trend reasserts itself. Markets are not tidy, linear things, so it's necessary to have this granularity built into the gauges. Surprises One of the things I always try to keep in mind is what the most surprising market move would be. After all, the market's ultimate job is to fool as many people as possible, as much of the time as possible. Right now among technicians the most surprising thing would be a strong upside run through the heavy resistance just overhead. I can't shake the notion that shorting in this resistance area is the "easy trade", and the market just never lets that easy trade work out well. There is still a significant chance that those jumping on the short side early are going to get blown out of their positions, which could be the fuel that propels the averages over the major resistance point. Supporting this notion is the fact that sentiment has not reached a bullish extreme. There is still plenty of "sentiment fuel" in the tank to push the markets higher. Our dashboard shows 52% full. There are also many, many traders that are fighting this rally, and quick to put on short positions. I can't recall a rally this strong that has ever been afforded such little respect from the many traders and advisors that I monitor. And somewhat surprisingly, the traders in the Rydex funds have kept a bearish slant to their positions. Rydex has a variety of funds that are either bullish or bearish, and since they publish the total assets in each fund on a nightly basis, it's possible to see how traders are positioning themselves. The ratio of the money in the bearish Ursa Fund is still well above the money in the bullish Nova fund. Right now, for every $1.00 bet on the bullish Nova fund, there is $1.59 bet on the bearish Ursa fund. Even seven straight up weeks has not removed the firmly entrenched bearish psychology in the markets. I still believe that bonds represent the ultimate sentiment tank for the stock market right now. The inverse relationship between stocks and bonds continues to be the major story in the markets. When bonds rally, stocks fall; when bonds fall, stocks rally. You have to monitor both markets closely right now, to really know what is going on. For the bond market, you can follow the bond futures, with the current front-month futures contract the December futures, symbol USZ2. The bond market still looks to be making a major, long-term top. In the short term, the momentum in bonds is also clearly down, even with yesterday's rally. Here's the 30 minute chart: Today we'll get a ton of economic numbers to push around the bond market, which in turn will spill over into the stock market. As I'm finishing this up, the intial jobless claims came in better than expected at 364,000, which continues the very clear trend down in this important weekly number. Perhaps...just maybe...the economy isn't as bad as many think. The bond market is selling off initially on this number, which should equate to a strong rally day in stocks. One final note: The next Morning Briefing will be on Monday, December 2nd. Have a happy and relaxing Thanksgiving with family and friends.   Definitions   This Morning Briefing is brought to you by 21st Century Alert. Your 21st Century Alert subscription offers so much more. Click here to go to 21st Century Alert's Web site. You can find this article on the Web at: http://www.21stcenturyalert.com/page/tcx/morningbriefing/2002-11-27/ To remove yourself from our mailing list, or to get your username and password so that you can access the Morning Briefing archives on our Web site, click here.