Monday was a thin quasi-holiday affair, and while not a whole lot happened, what did happen certainly wasn't bearish. The markets managed to move ever higher, and we've now drifted within shouting distance of the next action zone at 1054 to 1060 on the S&P 500.
I got asked a few times today what to do with left-over long positions from the hedge on the "busted short" back in the1024 to 1030 zone. I'd be looking to sell those on any further move up here, especially any spiky move over SPX 1050 on a news-driven bullish open.
This has been a good example of why that busted short trade was actually a good, low-risk position. I had identified that zone around 1024 to 1030 as an important chaotic balance point for the markets, knowing that if the energy got released in the opposite direction there was almost certainly going to be enough follow-through to make up for any small loss on the initial position.
Which brings up a good point -- how it's essential to spend more time thinking about what can go wrong with a position than what can go right. The winners will always just take care of themselves. You can put those on auto-pilot and relax. It's the ones that don't work out that you've got to plan for -- and if your plan allows you to escape relatively unharmed under adverse circumstances then that's a pretty good plan.
Our Sentiment Tank remains pegged at zero for the second straight day. There aren't even any fumes left in the tank. (See Adam's comments below). That makes hunting for a short trade around here an interesting idea, as there is an overload of potential energy available for release to the downside.
But picking a top in this current market is a tough gig, to say the least. I'm not going to recommend relatively illiquid end-of-day Rydex positions until we see a major break accompanied by a massive "spark of fear" on the VIX, or some sort of amazing blow-off top that is an easily identifiable bifurcation point. In the meantime, we'll go for relatively low-risk SPY and QQQ positions instead, that are easily adjustable from short to long. I'll have more details on the plan for this 1054 to 1060 zone if the market can manage to move up into it.
While the SPX is making upside progress, our old friend the VXO is once again banging down against its lows, and has again moved solidly into the teens. This also argues for a short-term top, even if the low volatility rut is going to linger.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Remained at 0% for the second straight day. Bullishness is pervasive.
SHORT-TERM: Pushed into an advance phase.
MID-TERM: Progressed 11 points to 73% on the advance side with Confidence rising to a bullish 3.
LONG-TERM: Flipped onto the advance side at 81%, if just barely. Confidence moved up 2 points to a bullish 2.
BOTTOM LINE: For several months each dip down toward 0% in the tank has provoked at least a short-term selloff. Monday's strength may be due to the convergence of what appears to be a very positive earnings season, the holiday closure of the bond market, and the pending expiration of options this coming Friday. But aberrational or no, it must be respected.
We've been saying for while that the only way this could play out bullishly would be if the Tank hit 0% and stayed there. So far that's what's happening. But let's see if it can sustain. On Friday the CBOE Put/Call Ratio was at a high level of 0.93. (Often a one-day reading above 0.90 leads to a market-pop higher.) On Monday that ratio dropped sharply to 0.62. (Readings near or below 0.60 often lead to short-term dips.)
That said, as long as the Tank does stay pinned to 0% (or even below 5%) the advance in the market is likely to continue.
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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