Monday, January 08, 2007


Having spent the better part of the day, sifting through economic and technical data to give me a better idea of where we are headed, I just wanted to post the more relevant of these indicators.

The NYSE New High/ New Low ratio is currently at 89%. Any reading above 85% is bullish while a reading below 20% is bearish. A drop below 70% is considered bearish. We have had a bullish reading since mid October with the indicator rising to over 95% at times over the last few months . We have cooled off a little in recent weeks though we can still cool off a lot more. So while this indicator is very bullish for now, the better part of this rally could be behind us and we do need to keep an eye out especially for a drop below 70.

The NYSE 30 day advance/decline oscillator is currently at 165 having spent the better part of the fall in the 200+ territory indicating an overbought and therefore potentially bearish environment. Below negative 200 would be considered oversold and therefore bullish and we are not even close to those levels. Hence a sharp pullback in the market, may not be a bad thing to create an environment of oversold conditions and hence, a better risk to reward ratio going forward.

Now to one of my favorite indicators , the AAII sentiment index ratio. Many pundits are screaming that we are in times of extreme investor pessimism and others are calling it a time of extreme exhuberance. So you be the judge. The indicator is currently at 63% and though not at extreme bullish levels, we are more bullish than bearish as a whole. A reading above 70 indicates bullishness and below 30 is bearish. So we are a whole lot closer to bullish than bearish and this indicator has been moving upwards in recent months.

Mutual Fund cash levels are at historic lows of 4.4%. I hear a lot of commentators talking about all the excess cash sitting on the sidelines waiting to be deployed in the equity markets. This indicator however tells me that mutual funds are holding less cash than at any time since the 2000 market top. This indicator looks very bearish to me and I do think it is a fairly useful gauge of future market performance.

Can the market continue going higher ? It definately can. But I do feel we are at a level where the risk outweighs the reward. I do feel that cash sitting in a 5% money market account will outperform the indices this year.

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