Stock Market Sentiment

Market sentiment from a contrarian perspective is still running on the bullish side on one of my
favorite measures -- the equities only put / call ratio. $CPCE

When the 30 day m/a of the equities put / call starts running above the .70 mark, it is often an
indication that traders are growing too bearish and that it makes sense to look for a market rally.
Such is what happened at the end of Oct. this year when the market sharply reversed to the
upside following a genuine price correction, and I note that sentiment despite a strong rally is
still very subdued on 30 day m/a. Also, I note the 200 day m/a of the put / call ratio is rising
toward the .70 level. The last time the 200 day m/a for this measure rose sharply toward the
.70 mark was in late 2011 when it presaged development of a powerful up-move in the SPX.

Sour sentiment can get more sour, but I would at least make a note that we have not seen this
kind of  protective action by traders since the heavy pullback in 2011.

Gold Price

Amidst a longer term bear market, gold did have a couple of rallies in 2015. However, given the
inherent volatility of the gold price, playing on the long side has been barely worth the candle.
Gold Weekly

The gold bear reflects a substantial deceleration of inflation since latter 2011, weak commodites
markets, a softening of global economic growth in recent years and a sharp rise in the US dollar
since mid - 2014.

The chart is a classical bear market chart with gold having suffered two major price downlegs
since 2011and with the possibility of a third and final leg down in price to come some time ahead
a live option.

The global economy has been growing but not at all fast enough to push operating rates up to
counter significant global overcapacity. Moreover, ongoing financial stresses in the capital markets
have been mild and not broad enough to trigger a flight to gold. Global new business order rates
have been positive since Q 3 2012, but because of the magnitude of capacity overhang, excesses
are being corrected slowly via the painful process of plant closings and mothballing.

There are a couple of things that render gold worth keeping an eye on. The gold price is approaching
an oversold on intermediate term RSI, speculative long side interest is low and has plunged in
recent weeks and the USD is struggling to get above resistance at the 100 level (Top panel of the
chart).

SPX -- Daily

There was enough positive energy behind the SPX to see it push above resistance at 2100 this
week. SPX Daily

That it did not plainly suggests there is still overhead resistance in the 2100 area that the market
must plow through to move higher. So, if you are on board on the long side, you will have to wait
it out for a while longer and keep in mind this week's fail will get at least a few traders to explore
dumping some shares for the short run.

Oil Price

I have been trading the oil price for over 40 years. There has been more good fortune than ill. Yet,
over the past 15 months the track record on calling price has been no better than 50%. My estimates
for global oil demand have properly exceeded the consensus but the increase of supply has been well
above my estimates. Nowhere in time has this been more true than the past five months, when my
guess of a seasonal peak 2015 price of $70 a WTI bl. was way off the mark. Historically, when players
get the price of oil wrong, it is because of oil demand forecast errors rather than bad guesses on
supply.

Looking toward 2016, my guess has been that crude would average in the mid - $50s for the year.
I am not going to expend time trying to defend this now, but concentrate more on the oil price techincals
instead. I have made shifts in focus like this in the past and often they are helpful. So, let's look at
WTIC Weekly

Oil has been in a deep bear market since mid - 2014. The bear has been confirmed this year because
oil price rallies have failed to take out the 40 wk. m/a on two occasions so far. The price is modestly
oversold against the 40 wk m/a, and is turning to oversold on the 14 wk. RSI. There has also been
a positive but inconclusive turn on MACD. Note too that oil stock traders have turned a bit more
positive on the market in recent weeks ( XOI oil index in the top panel). Expectations for crude
have turned up in mild fashion and at this point, it is important from a technical perspective that
crude hold support at $40.

I have done my mea culpa and I am probably going to stick with this intermediate term perspective
chart in the months ahead.

US Dollar -- At Interesting Point

With the Fed now out of the business of QE, and with sentiment again swinging toward a more
nearly imminent "lift off" in short rates, the dollar is on the rise again to salute a prospective,
more full blooded tightening of policy by the Fed. $USD

What is interesting here is that not only is the dollar overbought in the short run, it has also formed
what could be a secondary top. It made a strong, momentum driven top in the spring, then corrected
moderately, and is now back up to near the 100 level on the index. Sometimes, this sort of process is
merely establishing a platform for a breakout move, and sometimes it signals that the index in
question is running out of gas and is setting up for what may eventually turn out to be a stronger
correction from what is becoming more formidable resistance. Check out the price action for
the USD over 2012 - 2013.

SPX -- Daily

As mentioned in the 11/02 post, the SPX was rather overbought in the short term, and as fate would
have it, it has hit a speed bump which has broken the uptrend based on closing prices. SPX

As shown, the market failed in its first test to hold above the newly regained resistance level of 2100.
It should come as no surprise if the SPX was to struggle a bit over the next week or two either through
consolidation or a search for short term support. It has come a long way in a short period of time.
There could be a test of the newly rising 200 day m/a which sits a little below the current level around
2080, or there could even be a more formidable pull back into the high 1900s, which would still
leave SPX in an uptrend captured by the very wide range seen over Sep. / Oct. A development of the
latter sort might alarm a number of traders, but it need not be alarming as it might be suggesting
the SPX is set to follow a modest, but volatile uptrend for a while. There is no forecast from me
here, just the outline of a couple of interesting possibilities to think about in the wake of a very
unsteady three month period.

30 Yr T-Bond % -- Observations

The 30 yr Treasury long term bull market has not yet ended. It reflects decelerating US economic
growth momentum in terms of industrial output and long run slides in inflation momentum and
short term interest rates. These same factors govern the trend slide in yields as seen on the chart.
$TYX

Recent data show production at 0.9% yr/yr, the CPI at 0.2%, and the 3 mo. T- Bill near the zero
bound. With a nearly stalled economy, no inflation to speak of and ZIRP, it is reasonable to put
the short term yield band at 3.00 - 3.50% for the bond to represent the premium for all the
unknowns in its prospective 30 year tenure. The bond market has become increasingly accepting
of the Fed's ZIRP over the past five years, and players have also bought off on the persistent down-
ward drift of inflation since 2011 and the slowdown in the growth of industrial output. Ergo, the
T - Bond sits at around 3% presently.

Over the next six months, if there is no further significant erosion in the price of oil and other
sensitive materials prices, the CPI could well "back into" a yr / yr level of near 2%, and the Fed
may move to raise short rates if there is also a modest improvement in real output growth. This
could lead to the sort of sharp run up in the yield % as was seen from 2012 to the end of 2013
when market players guessed (incorrectly) that large QE from the Fed would trigger faster
economic growth, accelerating inflation and an eventual abandonment of the Fed's ZIRP. But it
need not unless the real economy strengthens enough to convince investors and traders that the
US is experiencing  a positive reversal in growth of substance. So, I come out the door that
upward pressure on the bond yield will depend most heavily on the perceived sustainability of
of an improvement in real output growth.

At present, there are just a few hints the economy may soon get past the difficult period of excess
inventory experienced over the past several odd months, but that awaits some confirmation.
Naturally, if we do see a somewhat stronger economy in the year ahead, there should be enough
follow through on inflation to push the Fed to raise short rates gradually. If such occurs, it
may be necessary to scuttle the 3.00 - 3.50% yield band for the bond shown on the chart.

SPX -- You Folks Can Take It From Here

Back in late Sep., the SPX fell to its most oversold levels since late 2011. It has rallied since then
to a strongly overbought position currently. As an old guy who likes the occasional good trade, this
development was manna from heaven. So, I have taken the money and run. As I said when the
market went into its Sep. tailspin, I thought the guys jumped the gun because I could not figure out
a bear case. I conceded the market may have been overdue for a correction, but I did not see the
bear. I still do not, but also do not see the fundamentals as warranting a substantial and sustainable
upside from here. Since I would be happy with SPX 2160 by the end of next year, and since the index
has just topped 2100 again, I am pleased to book a large short term profit and take my chances that
the next 14 months will provide another opportunity or two to capitalize on a deep oversold.

The thinking here is that the easy, low risk, high return money has been made. It has been a neat
bull market from early 2009. The Fed is no longer providing the wonderful liquidity tailwind from QE
and the stock market is expensive on a valuation basis. There are some interesting bull stories that
are incubating now, but as Warren Buffet was fond of saying, this is a game where you are the batter
and there is no umpire and thus you can wait for your pitch. I plan to keep the blog going as before,
but when it comes to US equities, you now know where I stand.

SPX Daily