No Fuel in the Tank
Our sentiment tank hit 0.3% yesterday. That means, essentially, that all the bearish fuel available to push prices higher has been burned up. When I say bearish fuel, I'm specifically referring to bets made against a rising market -- meaning short positions and put options. Those holding shorts and puts are natural buyers of the market as prices rise against those positions.
Most people aren't really tuned into the fact that it's not fresh buyers that push prices into a breakout above important resistance, such as yesterday's charge up and over SPX 1040. Breakouts are caused by shorts scrambling for cover. A big white candle slicing through resistance forms as the fast-money shorts who faded the obvious resistance level are forced by exogenous news flow to buy at any price. Most long breakout traders like to wait for "confirmation" before stepping in. Shorts don't have this luxury.
The data point that weekly jobless claims came in at 382,000 was a big whopping deal in pre-market futures trading, although nobody seemed to care that last week's numbers were revised upwards to 405,000 unemployment claims. It will be amusing to see if next week they revise this week's celebrated number up as well. But never mind those silly details. The few remaining shorts were on the wrong side of that little news tidbit, and they got hammered for it.
But there just aren't too many shorts left at this point, as evidenced by our sentiment tank, and by the really, really low VIX. That's why the "short-roast" couldn't blow prices up all the way into the close, as it would have in the early stages of a big upside move. This remarkable momentum low on the VIX just keeps going lower, but it's banging down now into rarefied low territory.
It was a potentially meaningful turnaround into the close yesterday. Follow through will be the key here. Interestingly, the white candle during the first hour yesterday triggered a trend signal on my hourly fractal dimension indicator, but the lack of sentiment fuel saw this trend flame out quickly before reaching the usual exhaustion levels down around 30.
This market has been awesome in its ability to confound. I'm thinking that the market is now in a good position to quickly re-congest the hourly chart, and then start a downtrend as the VIX cycles into a short-term decline phase. If you're still in any left-over long positions, push the sell button if you see any sort of pop up in the VIX, as that will be the sign that a short-term decline phase is underway.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 1.7 points to 0.3% full of negative sentiment. There has been one day in the past year when there was less fuel in the tank than now. That day was September 8 (see the blowup of the tank below).
SHORT-TERM: Hourly gauge is in an advance phase, but one that is slowing down and could go Neural any time now.
MID-TERM: Progressed 10 points to 52% in its advance phase but Confidence regressed to a neutral 0. Confidence is ripe to accelerate on the red (down) side of 0.
LONG-TERM: Weekly gauge regressed in its decline phase by 3 points to 27% and confidence regressed to a neutral 0. If this gauge regresses 2 more points it will flip into neutral on Friday. More than 2 points and it flips into an advance phase.
BOTTOM LINE: The tank is a hair's breadth from being totally drained of negative sentiment. Here's what it looks like since early August.
As we have suggested lately, we expected the SPX to break 1040 in order to shake out the stops on some short positions (which the market did on Thursday morning) before failing. The index may be able to squeeze some further choppy upside out of money migrating from bonds to stocks, however with the tank at 0.3% (all but completely empty) short-term upside is likely to be extremely limited. While the less likely scenario COULD unfold the more likely technical scenario (which would be, as the name suggests, MORE LIKELY) would be a pullback before a definitive runup through SPX 1040. (Need to get the tank up around 20% at least). A bona fide breakout with the tank already virtually at 0% would be a major aberration. (Of course major aberrations do happen...it's just probably not a smart idea over time, to place large bets on them happening, which is our primary concern in this space.)
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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