UPDATE – WITH USDYEN PULLING MARKETS LOWER WE ARE IN ON THE LONG SIDE ON OUR NIKKEI POSITION BETWEEN 12,300 & 12,700.
The S&P 500’s 10-day advance/decline line measures the total number of daily advancers minus decliners in the index over the last ten days. It’s a great measure of short-term strength and weakness in the market, and extreme readings are thought to be indicative of a reversal. As of the close yesterday, the S&P 500’s 10-day A/D line had ticked to -1,500, which is the most oversold reading the market has seen in more than a year. This has surprised me as the pull back in the S&P from the all time high is only a little over 4% and the index is still some way above its 50-day moving average.
With the Put Call ratio in the US hitting (on the equity only element) nearly 1.2 yesterday and a meaningful amount of air being let out of the investor sentiment balloon (the latest AAII numbers show just 29.5% bulls versus 38.9% bears), we think we are nearing a short term floor and a reversal is imminent. With the Nikkei 225 scratching the 12800 level just as we anticipated overnight, and the Japanese market very oversold now, we are ready to play this to the upside over the next few days and have begun opening long positions on the Nikkei in our Macro account.
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