The market gave the first real sign that a down move is coming yesterday, but it's an admittedly subtle clue. The hourly chart of the S&P 500 started a downtrend, and it did it without storing up a full load of energy first. This is often a sign that a trend is ready to pop in a bigger way.
However, the more important 150 minute chart is -- remarkably -- not trending yet. It's still just puttering around.
It's unlikely that a holiday-thin trading session today will do anything to alleviate the wishy-washy market. With the bond market closed, many of the bigger players won't be playing around with stocks, as they look at both of these markets as inter-related. So it may be a good day to get some other work done, if you're an inveterate market watcher.
It also gives us a moment to back up a bit and look at the bigger picture. It looks to me that perhaps all the good news is finally "baked into the market", and a decline of significance is now starting to creep its way in. Along these lines, the other day I showed a completed upside fractal pattern, with the SPX making one final push higher to tag its line of central tendency for the uptrend.
That uptrend looks complete to my way of viewing markets. This now sets the stage for a down fractal, and it could be a nasty one. This market is in such a shockingly complacent mood that it has everybody now believing that the "VIX doesn't work anymore." Implied volatility, as measured by the VIX and VXO, has been scraping along the bottom for months. It's just one of those rare deals. Every 3 or 4 years the VIX needs to be totally and completely discredited in just this way, so it can keep on working for those who still want to follow it as the ultimate sentiment guide.
What this VXO chart clearly demonstrates is that the majority of market participants are sitting on long positions, and they are feeling pretty smug about them. The market will let you get away with smugness for a while -- as we've seen -- but the payback tends to be that much nastier when it comes. When the selling starts, it's going to be completely obvious that this was a pretty crazy attenuated sentiment anomaly -- in retrospect, at least. It certainly doesn't feel obvious now.
I also want to re-print the latest Nikkei/Nasdaq comparison, as our Contributing Analyst Tom McClellan has just updated his chart following yesterday's close. (I love when Tom updates this chart, because then I get to use it....as I get tons of requests!)
I'll say it again: no market path is ever pre-determined. But this relationship is spooky in its similarity. A major decline is now staring us in the face, according to this analog. It's also saying that such a bottom will be a pretty darn good place to get long, so we'll have to keep that in mind too.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Filled 2 points to 4% full of negative sentiment.
SHORT-TERM: Gapped at the open into a solid Decline phase.
MID-TERM: Rolled over the top and onto the decline side at 7%. Confidence moved from bullish to neutral.
LONG-TERM: Rolled from Neutral to 13% on the decline side. Confidence remains at a bullish 1 but is ripe to roll into the red as well.
BOTTOM LINE: With both gauges moving into the red and the tank filling up to 4% we have arrived at a window of opportunity for an important decline phase to begin in earnest. Will the selling gain traction? If so, then there's a long way down to go. If not, then the bulls will be further emboldened.
If the SPX can't climb back over 1048 post haste, then further downside is very likely in the cards.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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