Running to the other side of the sinking ship...

Fire in the Heavens

Market Stats as of 5/20/2010 (SP500 at 1081 as of 12:55 EST):

• Slow Stochastic: 42, %K below %D line (A BUY signal is issued by this indicator when the %K line is below 20 and crosses above the %D line)
  
• RSI: 37
  
• Advance/Decline Oscillator: approaching a “BUY” signal – still looks like the market selloff could continue for several more days
  
• Conference Board Leading Indicators: have declined slightly, looks as if it they have reached an unsustainable peak
  
• ECRI Leading: declined month over month; on a YoY basis has been losing momentum
  
• ECRI Coincident: growing at a very meager pace (does not reflect a rapid “V” shaped recovery)
  
• Shiller 10 Year PE: Above 21, still is describing a fairly to over-valued market environment
  
• Vix: 42, fear is in the air (this is an encouraging sign for contrarians looking to make some purchases)
  
• Investor’s Intelligence: 1.7, sentiment is becoming more realistic yet has not become exceptionally bearish
  
• 21 Day Put/Call Ratio Moving Average (Equities): approaching over-sold levels yet still not suggesting that sentiment is overly pessimistic.

Conclusion:

Weak Buy/Neutral at SP500 1080 based upon current weakness in technicals and more realism in sentiment measures (Vix at 42 is an encouraging sign). It might be wise to make small purchases (25% of cash) of undervalued high quality ETFs in the Energy and Health Services sectors (both of these industries have not rallied as much or become as over-valued as the general market). However, based upon the deteriorating fundamental picture (Stimulus unwinding, leading growth declining or stagnating, and EPS likely to print below expectations) I remain cautious and concerned about more selling pressure. If the SP500 index falls to 1020 in the next several days and is confirmed by sentiment indicators I would consider upgrading the “Weak Buy” signal to a “Mildly Moderate” one (Not "strong" due to the high 10 Year PE and other weak fundamental data points). If however the SP500 does not test the depths as I hope, I will still remain constructive about the long term outlook if sentiment becomes more "depressed and gloomy".

10 Day Target: 1020
September target: index to attempt another test at 1210