THE NEXT LEG DOWN WILL BEGIN ONCE THIS INDICATOR FALLS IN LINE
One word: Sentiment. There are still too many bears to reward them with a decline to the October lows. I will illustrate my point with the charts below. What should be noted is that the markets don't necessarily need to skyrocket in order for bearish sentiment to subside. The market can also resolve sentiment by moving sideways for a period of time. In this case, that is exactly what I expect. A range between 1210-1320 into December and possibly January. The charts below are moving average only charts of the combined put/call ratio. I use moving averages only to smooth out the daily spikes, which amount to noise on the chart. As reference points, I have used the fakeout moves that I outlined in yesterday's posting. You will see a clear pattern emerges in order for the market to experience a top: click chart to...
WHY CURRENT PRICE ACTION MAKES ME BELIEVE WE WILL REVISIT THE OCTOBER LOWS
During times of confusion in the marketplace, I have found it beneficial to clear my focus through the elimination of all methods of analysis but one. The attention to price action is what has allowed my success in the past and will do so in the future. For that reason I am giving up my biases - every single one of them - in favor of looking at the market from only a price action standpoint. What is the market telling me? That's what I want to know. Here is what I have come up with thus far: 1. The consolidation we have seen occur over the past couple of weeks in the S&P is not your typical "crunch, rest and explode" pattern that you see in healthy bull markets. A healthy consolidation does not have 1000 point swings in the Dow during a week that end up bringing the average to basically unchanged for the week when all is said and done. That's what happened this week. This type of volatility, marked by a proclivity towards random acts of violence, is the sign of a significant turning point. We don't have to look back far to see when this last occurred. In fact, it was only a couple months back within the range we just exited from. If you look at the current range that is forming, compared to the August - September time period in the S&P, the similarities are notable. click chart to enlarge The point here is that what we are seeing now is not consistent with a continuation pattern, but rather a pattern that seeks to change the trend in a violent manner. We saw that violent change of trend take place with the October 4th bottom after the choppy consolidation that had the bears thinking we were headed for sub-1000. Now we are starting to see the same action here. The change in trend, however, will come in the opposite direction as the October bottom. 2. Healthy bull markets off of "real" bottoms have a tendency towards moves that see the averages move up in steady bursts, followed by short periods of consolidation. NONE of the moves are marked by excessive volatility within a wide range. Especially in the first few months of the move up. Here are some examples of "real" bottoms that have taken place over the past decade: click chart to enlarge 3. A move that is made off of a market bottom that proves unsustainable is typically marked by excessive periods of consolidation that contain volatility. The moves are sharp in nature, which is consistent with both real bottoms...
IS THE MARKET SITUATION *THAT* SERIOUS? THE ANSWER IS HERE
During tumultuous times in the market, I have a habit of waking up every few hours to check futures quotes. You can imagine my glee when I awoke at 3:30 a.m., picked up the IPad and saw that Dow futures were down 250, the Euro had plummeted and talk was once again of the pessimistic variety. Needless to say, I didn't go back to bed and my first words of my morning were restricted to four letters only. A lot of experienced market prognosticators today have been expressing their sense of dismay and surprise at how difficult this market has become. I don't know if what we are experiencing is the symptom of a failing economic mechanism or merely a cancerous cell that is contributing to the overall problem. The difficulties that come from days such as today cannot be understated enough, however. They not only prove devastating to portfolios, professional and retail alike. But they serve as a means of deteriorating confidence in the system itself further. It becomes a self-reinforcing cycle of non-participation and liquidity gaps that create further volatility. If I look back on Tuesday during the last hour of trading, I could not see one single item that begged of me to reduce exposure. The warnings were anecdotal at best. Investors are helpless against these types of violent gaps down after seemingly bullish foundations are established in the marketplace. All one can do is react to the situation in as beneficial a manner as possible. I outlined in my morning thought that I would wait until the last hour of trading to make a decision to liquidate or hold tight. I jumped the gun, after seeing the persistent weakness throughout the day only get worse with two hours left in the trading day. I liquidated positions during the last two hours of trading, ending the day with a 100% cash position. I had an investor contact me today wondering what my next move would be? I couldn't answer the question. A sign that I should probably step back until I see concrete information that will keep me from getting whipsawed yet again. I rarely do chart reviews during the week. However, the current situation is critical enough to warrant looking at the two indices that matter: S&P 500 and BKX. click chart to...
8 CHARTS THAT WILL MAKE YOU REALIZE THAT A NECKTIE IS THE CORPORATE VERSION OF A DOG LEASH
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SEVEN CHARTS TO KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
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GETTING DEEP INTO THE FINANCIAL SECTOR
It's time to take a very hard look at what has transpired this month in the financial sector. Earnings of the major occupants in the banking and investment banking sectors have been released. Lo and behold we're all still here, with all major limbs attached and functional. Once earnings season is out of the way here shortly, there will come a point of realization and enlightenment by market participants. I feel that the realization and enlightenment phase has already started in financials. You can see it in the price patterns and the way companies are avoiding the worst case scenarios on the downside by running away to the upside. The charts below will explain the concept in further detail. In a market where things change so drastically on a day to day basis, financials suddenly seem like they may be setting up to take the lead heading into November. The action today was very constructive. Let's look at the major financial...
5 CHARTS THAT WILL MAKE YOU GIVE THE MIDDLE FINGER TO YOUR THERAPIST
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4 CHARTS TO KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
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