Wednesday, November 9, 2011

Stock Market Indicators

The S&P 500 is highly correlated with our Fundamental Stock Market Indicator (FSMI). The FSMI fell for the third time in four weeks, dropping 1.1% during the final week of October and 3.2% over the four-week period to its lowest level since November 13, 2010. It’s down 17.5% since its cyclical high posted back in February.

Our FSMI is the average of the Weekly Consumer Comfort Index (WCCI) and our Boom-Bust Barometer (BBB). Here’s how they performed the week of October 29: 1) The BBB was flat during the latest week after declining nine of the prior 11 weeks for a total drop of 9.7%. It’s 17.0% below its record high (posted in March). Jobless claims--a component of our BBB--edged down to 404,500, based on 4-wa, after weekly claims sank to 397,000. The latest decline in the 4-wa is the fifth in six weeks since hitting a 9-week high of 422,250 during the week of September 17. The CRB raw industrials spot price index, another component, has currently stabilized around recent lows. 2) The WCCI fell to its lowest reading since Q1-2009, and the second lowest in the data series’ almost 26-year history.

Investors Intelligence's Bull/Bear Ratio rose for the fourth straight week to 1.27 this week from a 2½-year low of 0.74 four weeks ago. Bullish sentiment increased steadily over the four-week period to 44.2% from 34.4%, which had been the fewest bulls in more than a year. Bearish sentiment fell to 34.7% from 46.3% four weeks ago, which was the most bears since March 2009. Those calling for a correction edged up from 20.0% to 21.1% this week, just above the early October low of 19.3% (which was the first reading below 20% since September 2008).

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