Option players continue to show skepticism, which is a positive for the bullish case, but the important Investors Intelligence survey sounded a cautionary note today when bulls climbed above the important 55% level, and bears below the important 25% level, signs of too much bullish sentiment out there. It appears to us that the only thing supporting this market are all the puts below it. If equity option traders begin to buy the dips, we could be in for a strong correction. The S&P (first chart below) continues to “wedge out” at the critical 940 resistance level. Support is 925, 923, 918 and 910. The Nasdaq (second chart) is threatening to turn down from an overbought condition. Support is 1500, 1485, 1467 and 1435-1442. Resistance is 1525-1530. The Dow (third chart) once again held the critical 8522-8530 support level today. 8400 is the next strong support level below that, and 8650 is resistance. The Transports (fourth chart) are finally showing some signs of turning down, and the 10-year treasury yield (fifth chart) appears headed for at least 35. Finally, a long-term look at the Investors Intelligence survey (sixth chart), courtesy of Decision Point: notice the shift in sentiment in 1995 that continues at present. Before 1995, 55% bears were more common than 55% bulls. There hasn’t been a single reading close to 55% bears since then, while we’ve had 13 (now 14) or so periods of 55% or greater bulls. That suggests that we have yet to correct the sentiment of the mid-late 1990s, despite the longest bear market since 1937-1942.
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