Thursday, February 9, 2012

Extreme Optimism is the Sentiment as of Now

Chart courtesy of

This study plots the “dumb money confidence,” the “smart money confidence” and the spread between the two. The theory is that smart money will be a buyer during market bottoms a seller into rallies. Dumb money, on the other hand, will enter the market after most of the gains have already been realized and become bearish after most of the decline has already occurred. When the two groups diverge significantly from one another it marks an extreme sentiment reading that should be taken as a contrary indicator.

I’ve highlighted the extreme optimism spread readings since the bull market began in 2009. As you can see, when the market was momentum-driven in 2010 the extreme optimism reading lasted a considerable length of time. The extreme optimism readings mostly led to mostly minor corrections (although some of them were monsters). My point is not to criticize the indicator. In fact, the indicator nailed the bottom of the markets with great consistency since the beginning of the bull run. It also nailed most of the tops during the previous bear market. Obviously the lesson is context. Yes, we are currently at a sentiment extreme, just within a larger context of a bull market. The pullbacks are most likely buying opportunities and sentiment will remain optimistic for extended periods. This is how the market is rolling. Until it doesn’t. Sure, caution is warranted but don’t expect Armageddon around the corner.

This is an amazing indicator and I would highly recommend having Jason Goepfert’s research in your trading toolbox. He’s the man when it comes to quantitative analysis of a notoriously hard-to-quantify subject. An important note about this indicator is that it is calculated using real-money gauges rather than subjective opinion polls.

McAlvany Weekly Commentary

ilAn Interview With Richard Rahn in the Bahamas

About the Guest:
Richard W. Rahn is a senior fellow of the Cato Institute and the Chairman of the Institute for Global Economic Growth. He is also a weekly economic columnist for The Washington Times, and serves on the editorial board of the Cayman Financial Review.

APC Breaks Through Its Neck Line : APC

Anadarko Petroleum Corp. (APC) – This major independent oil and gas exploration and production company, with operations primarily in the U.S., the deep water of the Gulf of Mexico, and Algeria, is in a consolidation that began early last year. After a $4 billion settlement with BP (NYSE:BP), the focus can now shift to APC’s top-tier exploration and development portfolio.

Earnings are estimated to be $2.95 in 2011 and $3.05 in 2012. Recent developments in the supply of natural gas should help APC’s bottom line. On Jan. 31, the Trade of the Day said, “The stock has been consolidating within a massive “V” formation with a bottom at under $60 and a neck line at $84.” I also said, “The 200-day moving average at $75 should hold any pullbacks, and so that is the preferred buy point.” But yesterday APC broke through the neck line at $84. Buy at the market. The trading target is still $110.

Dan Norcini: Continued Dollar Selling to Keep a Firm Bid for Gold

from King World News:

With continued volatility in global markets, today King World News interviewed legendary Jim Sinclair’s chartist Dan Norcini. When asked about the chaotic, whipsaw trading action in the markets, Norcini stated, “Yesterday was the Bernanke rally in the commodity markets. It was all about Bernanke reinforcing the view that the global economy, but particularly the US economy, is in such a condition that it’s going to require a very low interest rate environment for at least the next 18 months and possibly out to the year 2014.”

Dan Norcini continues: Read More @

S&P cuts CME Group rating due to MF Global risk

Standard & Poor's Ratings Services cut its rating for CME Group Inc on Wednesday, warning the exchange operator increased its financial risk by increasing protection to futures customers in the wake of MF Global's collapse.

The ratings agency said CME also faced increased risk from the sudden growth of its over-the-counter clearing business.

CME did not immediately respond to a request for comment.

"The rating actions follow several instances of CME Group providing limited financial support to the trading customers of its defaulted clearing members," S&P credit analyst Charles Rauch said.

S&P lowered CME's long-term issuer credit rating to "AA-" from "AA" and said the outlook for the long-term rating was negative. The agency affirmed a short-term "A-1+" rating for the company.

CME, which owns the Chicago Mercantile Exchange and Chicago Board of Trade, is the world's biggest futures exchange operator and was a primary regulator of MF Global before the brokerage filed for bankruptcy on Oct. 31.

The failure shook traders' confidence in the futures industry, as former MF Global clients discovered million of dollars they had held in accounts at the firm were missing.

CME audited MF Global shortly before its collapse and has faced criticism from some customers who think it could have done more to protect them. Clients still have not received all their money back.

S&P said its negative outlook for CME represents the agency's view of "the potential legal, regulatory and reputational fall-out" from MF Global's bankruptcy.

CME last week said it would set up a new $100 million fund to try to draw farmers and ranchers back to the market for what it called "bona fide" hedging activities. Some have reduced their trading activity because of their diminished confidence in the market.

CME in November approved a $600 million guarantee to speed up payouts from the trustee overseeing MF Global's bankruptcy.

The support "raises incremental risks that were not previously factored" into S&P's ratings for CME, the ratings agency said. On their own, the money amounts to only about six months of CME's free-operating cash flows, according to S&P.

Matthew Heinz, analyst for Stifel Nicolaus, agreed the support for customers represented "pretty small potatoes for CME." Still, he noted "it's not their sandbox to be out their guaranteeing customer funds."

Regarding CME's over-the-counter clearing business, S&P said it was nervous about the exchange's growing profile in credit default swaps because the products are "outside the clearinghouse's historical expertise."

The company's clearing volumes for over-the-counter interest rate swaps and credit default swaps grew significantly in the fourth quarter.

The Spark That Lit the Economy

Friday’s employment data was the latest of a series of data showing marked improvement in the U.S. economy. ISI counted 18 straight weeks of stronger U.S. data including better vehicle sales, same store sales, homebuilding and manufacturing.

Also, U.S. money supply is growing at a robust 10 percent year-over-year, greasing the wheels for America’s economic engine, which showed 3.7 percent growth in nominal GDP in the fourth quarter.

U.S. Money Supply Grew 10% Over the Past 12 Months

What was the spark that lit the bottle rocket and sent the fireball into the sky for the economy?

The Wall Street Journal recently reported U.S. corporate tax receipts as a share of profits were at the lowest level in 40 years. Corporations paid a tax rate of 12 percent on profits during the fiscal year that ended September 30, 2011, less than half the average rate companies paid from 1987 to 2008. They employed a tax incentive known as “bonus depreciation” allowing businesses to deduct the capital that they invest back into their businesses.

At the same time, capital expenditures for American companies reached $1.5 trillion in 2011, up 10 percent from 2010. This is the third year in a row of increased capex spending.

Trends in U.S. Corporate Capex Spending

Gold Market to skyrocket in 2012

Eric Sprott – Financial Sense Newshour

Chart of the Day - Church & Dwight (CHD)

The "Chart of the Day" is Church & Dwight (CHD), which showed up on Tuesday's Barchart "All Time High" list. Church & Dwight on Tuesday posted a new all-time high of $47.93 and closed up 5.28%. TrendSpotter has been Long since Dec 12 at $44.96. Church & Dwight on Tuesday reported Q4 adjusted EPS of 53 cents versus the consensus of 51 cents and announced a 41% increase in its quarterly dividend to 24 cents per share from 17 cents. Church & Dwight, with a market cap of $6.5 billion, is the world's leading producer of sodium bicarbonate, (baking soda), a versatile chemical which performs a broad range of functions such as cleaning, deodorizing, leavening and buffering.