Last time I discussed how indicators were suggesting pessimism was rapidly heading in the right direction needed to establish a bottom but some of them weren't quite at the levels seen at IT lows of the past. Well, that's changed now. The 10 DMA of the put/call ratio is at 1.14 and NAAIM is at 26% pretty much matching what we saw in late May last year after the flash crash.. The VIX is also starting to get some traction and made a mini-spike. So, it's likely were are going to see at least a relief rally very soon. There's still the chance of one more downside spike to say 1250ish but I don't think it would get worse than that.
So does this mean that it's onwards and upwards again if we do put in a bottom around here? Probably not. The situation right now is similar to late May of last year whereby the market made a bottom, rallied nicely but eventually saw that bottom retested and violated (although not by much) later on before the ultimate bottom was put in. This is also similar to what happened during the consolidation of 2004. The market had made 3 bottom attempts before the correction was over for good (check out the chart I posted in Janurary).
So, more patience is likely for LT investors but now is the time to do some picking if you indeed have the patience.
Not if this market gaps up 100 points every day because of some Greece news. These futures and pre-market armatures just don't get it. I would rather to see the market open lower and close strong.
ReplyDeleteGranted the market did had a big gap September 1 of last year with QE2 pretty much in the cards which we have not closed yet. But holy cow does it piss me off staring at a 100 point gap up slowly fade away like clock work. I told myself not to over-trade and be more passive but the market just screws with you every single day.
I agree with you Dennis. Days that start off with gap ups when a downtrend is in place almost always end up getting retraced but there have been some noted exceptions and they were huge ones. The bull market that began in March 2009 began with a gap up. The rally that began off the July 2009 lows began with a gap up and like you noted, the September rally of 2010 started with a gap up. I have in the past got overly fixated with intraday market behavior waiting for everything to be perfect and it cost me in lost opportunities. When you get the green light to buy or sell just do it and do it in a way that makes you a strong holder if you are early.
ReplyDeleteThe market will always create maximum frustration at tops and bottoms. One thing I'm noticing though is heavy put buying even when the market has shown strength. Tuesday's 1 day wonder rally registed a put/call ratio of over 1. Anytime I've seen very high put buying in the face of strength like that and yet these bears "get away with it", it tells me it's late in the downtrend and this reckless bearishness will get punished even if that means more downside first.
Be patient and pick your spots. Just don't put yourself in a position when you will be weak holder and get shaken out if the market has one last stab down to say 1250 or even a bit lower.