PS: futuros e-mini s&p 500 a fazerem 3º ataque aos 947 pontos
WEDNESDAY a.m.
May 14, 2003
No Time for Complacency
by David Nichols
First off, I need to clarify something, as we've received a number of inquiries. When I talk about a "stop-and-reverse" trade, I'm only offering this as a suggestion for those so inclined, as it's the lowest-risk strategy I can think of to trade an extending market accompanied by an extreme of sentiment.
This is really meant as a suggestion for those with enough experience to know what "go long above SPX 938 means". If you have to write in for more details than that, then the best advice is to just skip the trade. Wait for a Rydex recommendation, where I spell out what to do in no uncertain terms.
This was actually purposely designed to be a self-selecting suggestion for those with plenty of market experience. One thing I've learned from the feedback we get is that there is no "typical subscriber". Everybody wants something different from the markets, and from me. I marvel how some people like my commentary and find it helpful, and others think I'm an idiot. It's the exact same information to both people! (By the way, some value my work AND think I'm an idiot... like my wife, for example).
This is also why I've purposely tried to distill my work down to one thing, and that's capturing the mid-term trends in the markets, complete with a way to measure and track the success or failure of my signals in a well-defined way. This is why I use the Rydex Funds to track the "official" trades. Using Rydex Funds, we've got a completely level playing field in the real world. Everybody gets the same entry and exit prices, as these points are end-of-day Net Asset Value (NAV). That's a great way to make sure there's no "fudge factor" in the tracking, as this needs to be held up to the closest scrutiny.
The Rydex Funds are also great because they allow those without margin accounts, or those using IRAs, to be short. By buying the bearish Rydex funds, you can make money while the market goes down. They also have funds with 2 to 1 leverage, which are the funds I recommend using.
But really, you may feel based on your own experience and acumen that these Rydex funds are not right for you. And that's fine! You can trade anything off a long or short signal; from individual stocks to ETF's to calls and puts. You can even "fade me" if you think I'm an idiot, and take the opposite side of the trade. It's up to you, and your own experience.
Yesterday prices stayed in the narrowest range in a long time. The S&P futures only moved 8.8 points from high to low. That's a ridiculously low number. If we check the Average True Range of the S&P 500 (SPX), we can see that actual volatility in the markets have been contracting fiercely as this uptrend grinds its way higher.
This is also a big reason why the implied volatility -- as measured by the VIX -- is so low right now. The actual volatility is very low. This low range, low volatility trading environment is entirely typical of tops for the market; indeed, you might even go so far as to say it's diagnostic of tops in the market.
Here's a chart published last night by our Contributing Analyst Jason Goepfert of sentimentrader.com (available to subscribers through our web site), showing what the market has done when the average true range gets this low. By the way, the outcome is the same even in a bull market.
In Jason's words, this low range environment "...is a warning sign that a certain level of comfort has set in. When there is something of a consensus among market participants as to likely future market direction, volatility dies down since the number of variant perceptions has dwindled, and the usual push-pull between bulls and bears is largely absent. This is a relatively constant feature of popular markets, and has been especially pronounced over the past five years."
So we need to be vigilant about a turnaround from these levels. The market may very well be setting up for a much more powerful leg higher -- and I'll go over some of the bullish scenarios tomorrow -- but it's going to have a hard time extending sharply from here. This is especially true with everybody eyeing the same resistance levels just overhead, and the market out of sentiment fuel. The turnaround could come at any point, so this is definitely not a time for complacency.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: The tank filled by 1 point to 3% full of negative sentiment on Tuesday.
SHORT-TERM: The hourly gauge was in a neutral position by end of day.
MID-TERM: The mid-term gauge remained unchanged at 95.5%, consolidating the flip from neutral into an end-stage advance phase. The CDI also remained unchanged at 5.
LONG-TERM: The weekly gauge remained unchanged at 100% in its advance phase. The weekly CDI also remained unchanged at 6.
BOTTOM LINE: The market had an opportunity to begin to roll over. It did not do so despite its overbought condition. The lack of any real increase in negativity suggests that this geriatric mid-term advance has not quite yet exhausted itself.
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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