Chop, Chop

The market tried to rally and has tried to head lower but is basically back where it was on Monday as we chopped around all week. After plunging 60 points in 4 days the S&P 500 has alleviated the very short term oversold condition by going sideways. In addition,  the debt markets have worsened and the VIX is still showing complacency. That is the bad news.

The good news is:

  • If the market heads lower over  the next few days we will get a better oversold reading. One that should lead to a better rally.

  • The AAII survey has reached an extreme that typically leads to a rally. The bulls are at a lowly 24% while the bears are at 48%.

  • The Investors Intelligence bulls fell to levels that typically lead to rallies although the bears are still way too low at 22.6%.

  • We have seen extreme put buying. The CBOE put/call ratio has been over 1.00 for 7 days in a row. The CBOE equity only hit .99 on Wednesday. That level has not been seen in years.

  • Hulbert sentiment is extreme and arguing for a rally.

  • Rydex traders are positioned in a neutral posture. This is an improvement as they have been excessively bullish all year.

A move lower over the next few days would get the market fully oversold and likely bring out even more bearishness.  If that were to occur I would  shift my short Put positions into outright longs. If the market continues to chop around it will be a tougher call. Either way, I believe it is late in the game for the bears. I believe there will be a better entry point for the bears and am partial to the long side.

1 comment:

Anonymous said...

Yesterdays rally fizzled. I definitely see more selling
coming. The market will not be moving higher without commodities leading as
historic evidence suggest. Energy and materials and related shares holding
ground so far, but today’s commodities weakness also suggests more liquidation
before the resumption of the bulltrend.