Bernanke's reappointment turned out to be a non-event. If he didn't get reappointed however I think it would have made things a whole lot worse today. The situation right now in the market is interesting. We are quite oversold but still finding a way to sink lower. That’s indicative of a weak market. Once again, the action in the VIX suggests complacency. The VIX only being up 2.5% today on such a solid down day is not good for the bulls. It was at one point on Thursday showing some fear but all it took was a modest intraday rally to quickly collapse it once again showing that there’s too much hope for a bottom. The put/call ratio wasn't high either today also confirming the lack of fear. Tonight's data shows that rydex traders are still stubbornly not capitulating enough. It's getting there though....I think another stab lower and they will give up the ghost. It's also possible they will sell heavily into the first rally off the bottom thus issuing a strong buy signal after the bottom is in but until there's evidence of that it would be wise not to jump the gun.
We were overdue for a weak market like this and as I pointed out before this correction began, a consolidation phase to the bull market was imminent. In my view, this correction is the undoing of the reckless bullish behavior of the fast money crowd such as option speculators who got too comfortable with the uptrend aggressively buying calls since about late November. I warned back in November and December about bearish omens gathering in the market and how in bull markets such omens could be ignored for a while before bearing fruit due to seasonality and other factors. It took a while for the correction but here it is. All it took was for some political uncertainty to do the trick.
But wait....is there perhaps a bigger issue that the market is warning about but hasn't showed itself yet? A silent killer if you will? It's certainly possible. That’s why this game is hard and so fascinating. You can only speculate as to what you think will unfold based upon experience and intuition. We all know the dozens of worries that are out there. But take a step back for a moment and pull up a 1 or 2 year chart. Can you honestly say that after such a strong run this dip makes this run look "broken"? Remember, it was only 9 days ago that the market was at a 52 week high and again I must stress the market was up 70% in 10 months!
Bottom line: We probably need to see more fear before the bottom of this slide is in. I suspect the action is going to be very whippy in the coming days and a dead cat bounce can happen anytime now but for me to pull the trigger on an index trade I want to see the dust settle and wait for the "all in" signal. Market action always trumps any signals or indicators and it's my style to see evidence of the market confirming what I suspect might play out before pulling the trigger because I could very well be wrong in my thesis. This can sometimes lead to whipsaws but more often than not; it's the safer higher percentage way to play things.
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