I don't mean to sound like a hypocrite talking about day to day market action and bottom picking when I've been preaching not to obsess about it....in this case however, I feel it warrants an exception due to the obvious unique circumstances the market is in.
Tuesday's reversal looked pretty good. During the bottoming process of a panic you will see such types of reversals whereby there's a downside flush followed by reversal to the upside by day's end. The stronger the day ends the more reliable the reversal. Not only was Tuesday's close super strong but the put/call ratio closed at a ridiculous 1.29 which is normally what you see during sharp declines. During a severe downtrend when you see a high put/call ratio like this in the face of a strong market day it's an indication that the bears are getting recklessly greedy. A high put/call ratio is justified when the market is weak but not when it's strong. Sometimes the market will actually go down in the days ahead proving these bears right....for the time being... but within 1-2 weeks they get punished severely. This same behavior occurred on June 10 and I made note of it in the comment section in a post a few days later. As you know, the market bottomed about a week later and roasted the bears badly with a viagra induced boner move that ended in early July. I remember first seeing this phenomenon in November of 2008 and it took about 1 week for the bears to get roasted whereby initially they were correct in fading the rally.
So, it's looking a lot better for the bulls now in the ST. Don't rule out another run for the lows, but downside from here should be contained at least for the time being and an upside snap back to 1200-1225 appears to be in the cards.
Ok, that's enough ST talk. In fact, I think I'm going to take a break from blogging for a while. I think I said all I needed to say. Now it's just a matter of watching to see how things play out for the next few months. Feel free to send emails and comments in the meantime...and good luck!
Any take on the massive ($17 billion?) equity mutual fund outflow this week? If I remember correctly the same retail investors were buying stocks back in February, March and April just before we topped out in May.
ReplyDeleteIt is also refreshing to see all perma-bears are finally out of their hibernation since last September when Bernanke basically gave them the middle finger. Now they are all coming out calling for double-dip and stock market crash after we just very quickly shaved some 1700 points of Dow Jones. What a joke.
Ya I saw that...definitely a bullish sign. We probably hit at least a ST low. I suspect the market will be choppy for the next couple of months though.
ReplyDeleteThe permabears are just that....permabears. They are useless in terms of helping you make money. People need to realize that many of these guys have been bearish for over 20 years.
Sold my stocks as of Monday, I took a loss in PCLN and make some nice coins in LULU and COP. The easy trade to go long last week is over and comes the chop and grind. I think the market is at a very critical level here. Last time we went below the 400 day SMA back in early 2008 all hell broke lose. So the more time we stay below this level I think more trouble is ahead.
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nice job...and your timing was perfect! I'm not a fan of moving averages to tell you the truth...not reliable and too slow moving. If you take a look at the 1987 crash for example, it sliced right through the 400 day and it didn't signal worse things to come....the crash itself was the worst thing. same thing happened in 1998 when there was the panic caused by the collape of LTCM.
ReplyDeleteI think market action in the weeks and months ahead will give clues as to whether this is a correction or a new bear market. I already see a lot of technical types calling this a new bear market....funny how quick people are willing to call it a new bear market so easily without even any evidence of earnings deterioration and yet it took a massive market advance of over 1 year with earnings well turned up before you started hearing people refer the market as a bull market!
yea i agree its pretty insane how people are all calling this the new bear market already while they did not acknowledge the bull run for the last 2 years. IYR the commercial real estate sector is showing good strength lately. you'd think they be down a lot more if we are going double dip. I am looking at a few names as I think people are throwing the baby out with the bath water
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