My interview with Professor Didier Sornette is now available for everybody to listen to on our web site . I think it's required listening for anybody that is going to be involved in the markets over the next few years.
Professor Sornette is a structural physicist, who studies the underlying mechanisms in complex systems, like earthquakes and the stock market. His group has characterized an oscillatory, predictable pattern in markets corresponding to "anti-bubbles" -- the backside of bubble markets. If his predictive model is right -- and it accurately forecasted this current benign period -- then the final bear market meltdown is still in front of us.
Today is options expiration, which is often a good day for traders to push back from the screen and go do something else. Expiration days usually go up, or down, and then reverse course, and then repeat that mini-cycle.
Come to think of it, we've been seeing this kind of action all week. Since Monday's push up, the markets have traded sideways in a very tight range. This is highly typical of expiration weeks. For whatever reason, they are usually sideways, with a bullish bias. The bullish bias shouldn't change today.
The short-term action is undeniably strong. The dips are being bought, and the breakout point above SPX 935 is holding solidly.
The ascending wedge on the daily chart is reaching the tipping point. The bulls will argue that a break above this wedge now would indicate we've just seen a "running consolidation", whereby the market has relieved the overbought pressure by simply going up more slowly than previously, and that we're now about to see another acceleration to the upside.
That's entirely possible. This is a very benign, very positive period for stocks, where nobody wants to even entertain a bearish notion. I think we're building a "mini-bubble" in stocks that is going to be popped viciously later this year. But as we've all learned, these bubbles can inflate -- and deflate, too -- for a long time.
Interestingly, Prof. Sornette mentioned in the interview that the formation of big market bubbles can actually be considered rational behavior by investors, as the huge rewards of investing in a bubble market outweigh the increased risks. Now that's interesting. This also could explain why bubble markets and anti-bubble markets have distinct oscillatory patterns, as the markets have dislodged so far from the norm that the positive and negative feedback loops generated by price, news flow, and sentiment are the only thing investors have to go on.
As far as sentiment goes, there's no denying that investors are feeling comfortable at the moment. The VIX has dropped in a straight channel all the way from the high over 40, at the March bottom for stocks. It's dropped down a long way in a short time, and is in a very scary spot.
But we'll wait for the solid momentum change. Remarkably, the pendulum of sentiment is still swinging down, towards a dropping VIX and rising bullishness. We'll just have to wait for something to come along to knock investors off their comfortable perch, before we can do a low-risk position opposite this big crowd. It should be worth the wait, as each day that passes builds an even larger bullish consensus.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: The tank drained by 3 points to 2% full of negative sentiment on Thursday. That's a new local low.
SHORT-TERM: The hourly gauge moved into a not-completely-convincing advance phase.
MID-TERM: The mid-term gauge progressed fractionally such that when we round it off we have to call it up a point to 96% in the advance phase. The Confidence Diffusion Index (CDI) is virtually maxed out at 6 out of 7. If the CDI begins to regress, that will pull the gauge over the top and into a decline phase. If the CDI remains in the 5-7 area at this point, then the market will likely be entering into a new larger and more bullish phase.
LONG-TERM: The weekly gauge flickered back up out of neutral (yellow at 99%) back to a maximal advance reading (green at 100%).
BOTTOM LINE: As we discussed in last night's Closing Bell we are within spitting distance of a fulcrum from which the market will either reverse or be forced into donning a pair of cyclical bull horns. The tank is at 2%, the long-term gauge is at 100%, and the mid-term gauge is at 96%. The SPX is now between 3 - 18 points below the clearest and most important resistance area on the charts.
Could we break out here? Hey, the Israelites got to the bank of the Red Sea, with Pharaoh and his minions bearing down on them in their chariots, and they must've thought, "Holy Moses, what're we gonna do?" And whatever you want to call it, the unexpected happened. Well, here we are at the bank of the Red Sea. Greenspan's up on the rock, it's getting dark and windy, he's wearing his Serape, and has his staff in his outstretched hands. (Not quite the figure that Chuck Heston cut, but, hey, work with me here...) Here comes Pharoah! Now what.
Most likely we fade to black and go to commercial for the weekend (ah those Expiration Fridays) and the denouement gets played out next week.
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!
#forex4u - chat forex MIRC
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
