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Andy’s Market Report

Simply stated, the rally continues.

?Nothing, and I mean absolutely nothing can hold this market down.

Numerous downgrades from Fitch, Moody’s the S&P and more importantly the World Bank, more European woes, news of inevitable Greek default, financial sector struggles, among bearish technical and seasonal readings hasn’t helped the bears at all during 2012.

As a result, the market has managed to advance on ten of the past twelve trading days leading to gains of 4.6% in the S&P 500, 4.1% in the Dow and a staggering 7.0% in the Nasdaq – in three weeks, yes, three weeks.

If you tack on the gains since December 19th, when this rally started, the gains are even more impressive as they reach over 9% in the S&P.

Are all of these gains really sustainable?

I think we all know the answer to that question. But, just in case you are unsure, just look at the list of indicators at extremes that are now bearish for the market.

VIX. Fidelity Sector Breath, OEX Determination Index, Put/Call Ratio – OEX Open Interest Ratio, Down Pressure – S&P, Down Pressure – NDX, NASDAQ/NYSE Volume Ratio, CSFB Fear Barometer, Rydex Bull/Bear RSI Spread, Daily Cumulative Tick – NASDAQ, TRIN – NYSE, Put/Call Ratio – Equity De- Trended, Put/Call Ratio – Equity Moving Averages, Put/Call Ratio – Equity Options Only, Put/Call Ratio – Total of All Options. Put/Call Ratio – Total of Moving Averages, Liquidity Premium – QQQ, Liquidity Premiun – SPY, TRIN – NASDAQ, NH/NL Ratio – NYSE, Up Issues Ratio – NYSE, Up Issues Ratio – NASDAQ, Up Volume Ratio – NYSE, Up Volume Ratio – NASDAQ, VIX Transform, Sentiment Survey – AAII and AIM Model.

Tack on almost every ETF I follow in a “very overbought” state and you can see why I am leaning towards the bearish camp.

And next week could be the week for the bears. Not only do we have some key earnings plays coming up out week including Apple, but the Fed is also supposed to give us some insight into where they think the economy is headed.

If all of the aforementioned information wasn’t enough to at least make you reconsider being at least a short-term bull, the week after options expiration is historically bearish.

There is no doubt, the risk is to the upside at this juncture.?If you were not privy to the stats I provided last week by the wonderful sentiment analyst Jason Goepfert
of he recently stated the following:?

“Starting around the 2nd week in January, stocks have had a consistent tendency to weaken. Or at least not show much strength. Especially technology.

I don’t want to hammer on this too much. Seasonality is a tertiary indicator at best, and can easily be overwhelmed by fundamental developments, technical breakouts and changes in sentiment.

The performance of various sectors since the day honoring Martin Luther King, Jr. became an exchange holiday in 1998. The performance of QQQ was positive only 1 out of 11 years into the end of the month.”

He goes onto to provide a wonderful chart that shows sector performance after the MLK holiday and the Nasdaq 100 only has a 9%, yes 9% chance of closing higher than its price level before the holiday.

The bears are already in the whole 2.0% and almost 3.0% on the S&P and Nasdaq, respectively so in order for history to repeat itself the bears better start getting to work.

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