I got surprisingly little flak yesterday for my assertion that the market is building another overvalued bubble -- an "echo-bubble" of the big 90's mania, if you will. It's likely that recognition of this latest equity bubble is a majority opinion, as most realize that stocks are again sporting sky-high valuations on a historical basis -- especially tech and internet stocks. Yet people see the momentum and want to participate anyway, turning a blind eye to the risks of buying overvalued paper.
Perhaps this is actually some sort of rational bubble, where a semi-lucid decision is made to speculate on the upside as long as the economy seems to be improving and stocks look good day after day, with the idea of sidestepping the inevitable carnage when the music stops and the bubble pops. Perhaps many upside speculators feel that they'll recognize this time when it's time to get out . How else to explain the unbridled zeal for yesterday's speculative darlings? People must be feeling "smarter" this time around.
Sorry, but that's just not the way it works. If everybody has the same playbook -- that is, "I'm going to enjoy the upside while I can, but I'll get out at the first hint of real trouble" -- then that's a recipe for a major wipeout, or even an outright crash. Everybody can't pull the ripcord at the same time. If they do, the market will head for the pavement at an alarming rate.
So that possibility needs to be on the radar here. It's a big reason why you have to be super careful about long positions with the VIX and VXO well under 20 and hitting major momentum lows. At the very least, if you're carrying long positions, you should consider selling a little slug to buy yourself some insurance in the form of cheap puts. Not many others are buying puts -- that's why they're so cheap! With the VIX and VXO this low, premiums have contracted mightily, as there is little anticipation of future volatility.
With this low pressure system still stalled over the markets, not many are in a mood to do much of anything right now. The market continues to putter around, congesting sideways. Even though Friday saw a fairly chunky expiration sell-off, there's been no follow-through. A market that was really ripe to correct under its own weight should have started selling off by now.
So we continue to wait. My 150 SPX chart continues to congest right around the 20 period moving average, while the VXO plunges down to remarkable new lows at 17.82 -- after hitting 17.43 intraday. This sideways congestion is certainly succeeding in making just about everybody feel comfortable.
I continue to show this 150 chart because it's the key right now. The market is balanced and ready for a streaky chaotic move. Remember that the fractal dimension indicator is directionally agnostic -- it only lets you know when the energy is stored up and ready. It is now, in just about every time-frame. This is precisely how big moves are spawned.
A big red candle and a pop up in the VXO will trigger a great-looking short entry. (Whether it works or not, obviously we can't know at this point). A big white breakout candle will trigger an uptrend, but chasing that is really high-stakes poker, with the VIX and VXO way, way overdue to cycle into a short-term decline phase.
It's my guess that the short should trigger within a day or two. All it would take now is the merest puff of selling pressure.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Remained at 0%, which is completely empty. Because the tank normalizes itself to the prior year sentiment must become MORE pervasively bullish in order to sustain at 0%. That's what happened on Tuesday.
SHORT-TERM: The hourly gauge moved into an advance phase early in the session and backed off toward neutral. The advance phase hasn't been abandoned but it has weakened.
MID-TERM: Progressed 2 points to 98% on the advance side. Confidence remained at a low level at a bullish 1 (out of 7).
LONG-TERM: Progressed 1 point to 81% on the advance side but with Confidence flat here as well at a bullish 1.
BOTTOM LINE: A while back I wrote that if the tank would move to 0% and stay there then that would be a bullish configuration. However that assumed that the SPX would continue to push higher. We've been at 0% (flat-out empty) for two days now without making even a serious effort to penetrate over the SPX 1050-1054 area.
If this picture isn't the soul of complacency then I don't know what is. If 2H October doesn't bring on a decent pullback then call the guys with the butterfly nets and take me away in a big white truck.
Obviously I'm horsing around, but let's do remember that topping processes take some time and they TRY (whether purposely or just incidentally) to make you feel that it COULDN'T be a top! That's what empties the tank so completely, and simultaneously makes a reversal so necessary.
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.
