Views of the bull-bear debate between fundamental fears and sideline cash

Another weekend of analysis and review including some looks at what others are seeing and saying in the bull-bear debate.

One of the most sobering: Calculated Risk did an article showing a dismal chart and review of the data reported October 16, in Industrial Production, Capacity Utilization Increase in September at http://www.calculatedriskblog.com/2009/10/industrial-production-capacity.html. From a very low point in June, it's advanced 3 months, but could be testing resistance - or if you're bullish, is just plain improving. The big question is probably whether there's still enough liquidity machinery and social psychology to drive it further up.

Terry Laundry has posted at his T theory site. It looks like his upper MA envelope is at 1112 now, so if time allows some more price then that corroborates the area others are seeing for other reasons including Fibonacci. Here's Terry's brief text - check his site link (above and always in the list at right) to see his updated chart work:

Update for Sunday October 18 2009 Today we have just one chart with data added and a number of discussions that help resolve questions I have received.

This weekend's Financial Sense Newshour with Jim Puplava features Quint Tatro (of Tickerville.com and other accomplishments), at http://www.financialsense.com/fsn/main.html. Quint gives good reminders that when trends are in effect, the trend remains your friend unless and until there's a trend reversal - which hasn't happened yet. He also reminds us to watch the semiconductors - about which I tweeted on Friday, as Intel dropped sharply after its supposed earnings pop (more like pop and drop). To which I might add once again, don't forget the QQQQ is testing its .618 retrace to its 2007 peak.

Schaeffer's Research Monday Morning Outlook: Dow Tags 10,000, and Technicians See Speed Bumps Ahead. Here's a quick summary and quote, and you may want to look at their charts and the rest of what they're saying:

A year after plunging through the 10,000 mark in the midst of a financial, banking and credit crisis, and seven months after bottoming at 6,547.05 on March 9, the Dow Jones Industrial Average (DJIA) regained the millennial milestone. Although it couldn't maintain that perch by the week's close, the week still went into the "W" column, and 10,000 was just a sniff away. Todd Salamone, Senior Vice President of Research, sees this rally continuing, but focuses his technical analysis on a few short-term speed bumps that could materialize within the longer-term uptrend. Next, the coming week begins a five-week expiration cycle, and Senior Quantitative Analyst Rocky White takes a look at why these weeks are often been bearish -- with the notable exception of the most recent occurrence in July. Finally, we wrap up with a look at some key economic and earnings reports slated for release this week.
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What the Trader Is Expecting in the Coming Week: Speed Bumps in the Uptrend
By Todd Salamone, Senior Vice President of Research

Another positive expiration week is behind us, and the market has been higher eight of the past 10 trading days. In addition to whether the Dow Jones Industrial Average can sustain a move beyond 10,000, market participants have a lot to ponder during the next few days and weeks. Third-quarter earnings reports will continue to dominate the news flow, a potential post-expiration "hangover" lingers (see Rocky White's commentary below), and the SPX is in the early phase of moving from a short-term "overbought" condition, as longer-term technical resistance again comes into play.

Indeed, amid generally poor earnings reactions from the financial sector last week, there are some potential headwinds in the short term. That being said, we are not in the camp that a major correction is just ahead, or that a retest or move below the March lows is on the horizon. "Overbought" conditions in recent months have tended to work themselves out via a consolidation or moderate pullback. We have little reason to think the future will play out any differently, given the huge amount of sideline cash waiting to buy stocks on pullbacks.

A chart that I find intriguing uses key Fibonacci numbers as a measure of the percentage gains above the Standard & Poor's Depositary Receipts (SPY) low in March to depict resistance areas within the uptrend. Specifically, I'm referring to the numbers 38.2, 50.0 and 61.8. Per the graph of the SPY below, I cannot help but notice how the market has tended to "dance around" key Fibonacci areas for lengthy periods, before the uptrend reasserts itself. In other words, these levels have acted as major hesitation areas once initially tested. The SPY is currently trying to distance itself from the 108.50 area, which is 61.8% above the early-March low. Many technicians are focusing on SPX 1,121, a 50% retracement of the 2007 peak and 2009 trough, as the next target for the SPX. But it seems there is more work that needs to be done first to escape the grip of the 1,080-1,085 area, which corresponds to 108.00-108.50 on the SPY.

In addition to the Fibonacci area mentioned above, another potential speed bump is the International Securities Exchange's (ISE) all-equity 10-day buy (to open) call/put volume ratio, which has moved higher to 1.97. This means ISE customers have bought nearly two calls for every put during the past 10 days. Such optimism among option players was present heading into post-expiration week last month and preceded a minor correction.

Meanwhile, according to the most recent American Association of Individual Investors' weekly survey, 47% of retail investors are bullish. This bullish percentage is near an annual peak, and the market has tended to struggle when the bullish percentage reaches these heights. From a bigger-picture perspective, though, the fact that less than half of retail investors polled are bullish in spite of a 60% rally from the March lows is simply amazing. It is representative of the sideline money that can eventually power this market higher.