Commentary: Paul Ebeling on Wall Street, Stocks are Going Higher

Commentary: Paul Ebeling on Wall Street, Stocks are Going Higher

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$DIA $SPY $QQQ $RUTX $VXX

Last Week’s Action

Week in Review: Another week of selling, particularly in the mega-caps

The selling from the prior week carried over to the shortened trading week. The S&P 500 fell 2.5%, the NAS Comp fell 4.1%, the DJIA fell 1.7%, and the Russell 2000 fell 2.5%.  

Indexes again at the 50-Day MA, along with the Mega-cap techs, are unable to hold the bounce and fade.

Leadership is light leaving the market with few potential drivers in here and stocks finished mixed on Friday but with a Bullish bias.

Technical Analysis

The stock market continues the rally process that extended and it needed the test of the 50-Day MA’s before it moves North again.

Technical Analysis

Indices moved back to the 50-day MA. The action left NAS Comp, S&P 500, DJIA at the 50-Day MA Tuesday tests of that mark and the Wednesday bounce. NAS Comp threatened to break the 50-Day MA, but a last hour lift managed to close NAS Comp just over that Key support mark.

This weeks action

Short-term market timers are Bearish and that is Bullish for us, as The average timer now has 70% of his equity trading portfolio sidelined.

This Bull market a new life from stock-market timers. In recent trading sessions, the timers have beaten 1 of the fastest retreats I have seen in many yrs of tracking investment newsletters.

The news is that the average market timer is now closer to the “extreme Bearishness” end of the spectrum than to the “extreme Bullishness” where he had been a few days ago. That is encouraging from a contrarian POV.

Consider the average recommended equity exposure level among a subset of short-term stock-market timers, this average now stands at 30.1%, which means that the average timer now has 70% of his equity trading portfolio sidelined.

Only 3 wks ago it stood at 65.9%, this dive rivals what happened during the February-March decline. In contrast to a 34% dive in that downturn, the S&P 500 from 2-8 September lost less than 7%.

The market timers’ fassst retreat from the Bullishness has been even more evident among those who focus on NAS 100 and Comp  stocks. Their average exposure level is now at 11%, which means that the typical NAS-focused timer is now almost completely out of the market.

These sentiment changes are encouraging, according to contrarian analysis, since the hallmark of a major market Top is Bullishness that hold on in the face of a decliner. That is not what we are seeing now.

Sentiment is not the only thing that makes the markets run. Even when sentiment provides an accurate forecast, it provides insight into the market’s near-term direction from a 2-3 wks to a month or 2.

Sentiment conditions can change fassst. But, so long as the market timers on balance remain lukewarm about the stock market, sentiment for the next few weeks augurs higher prices.

Have a healthy week, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.