Based on sentiment from Rydex and AAII bears are doomed big time....the question I ask, is this market going to run away to the upside right here right now or will the retest/lower low senario play out first?
You know I hate gaps because most tend to inevidably get filled but there's ones that don't. For instance there's a sizable gap in July that didn't get filled. This gap was a breakout gap from a ST low. In fact, the rally off the March bottom began with a gap and if that doesn't convince you, there's a huge unfilled gap that goes back to 1991. This is why you shouldn't get too hung up on gaps...although this is something I tend to do. Gaps that tend to occur near inflection points are the ones that I find make up the majority of unfilled gaps. So, it's quite possible that this gap could go unfilled plus it was done with tech leading. I'm not saying I believe this gap will go unfilled but rather that it would not suprise me much if it doesn't.
If we are going to see a retest or lower low play out, then we shouldn't see the market close above 1085. If it does you should probably kiss this senario goodbye.
With AAII bearish sentiment so extreme and Rydex data almost giving an "all in" buy signal a retest or lower low would probably set up for one of the best risk/reward long setups of the year. But I'll say this....there's enough pessimism right now and enough room before the market hits extreme overbought again such that we could see the market simply go straight to 1100 right here right now and smash though it like an anvil through paper. Yes, there's the bearish issues I outlined yesterday which haven't gone away....I'm just saying that the bulls have plenty of gas in the tank to make such a move unlike on October 12th when I mentioned that the market appeared fatigued.
The bottom line is this....bears are ultimately going to get screwed whether it's now or in a few weeks from now after a retest or lower low. That AAII extreme bearish sentiment reading pretty much sealed their fate. We should know in the next 3-4 trading days which of the above 2 paths will be taken.
All the shorts are praying for the gap in AMZN to get filled and it doesn't look like it's going to happen anytime soon. It could happen some day but the market will stay irrational longer you will remind in solvent. I have my doubts about gaps getting filled because it just seems too easy of a strategy. Like you can short when the upside gaps gets filled and you can buy when the downside gaps gets filled. Just like the quote for your blog the market makes fool of you when you think you got it all figured it out.
ReplyDeleteThe thing about gaps is that most tend to get filled but not neccessarily right away....it could takes several days, weeks or even months which is why going short or long just after a gap with the sole assumption it's going to get filled immediately is a bad strategy...and yes, sometimes gaps go unfilled. When it comes to individual stocks you'll find a lot more cases where gaps go unfilled because a big earnings miss or catostrophic event such a fraud or bankruptcy can signal a long term inflection point that in some cases are irreversable
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