Yesterday was sort of a throwaway day in the markets, as buying and selling pressure stayed evenly matched. More often than not after a streaky day the market will just take some time off as everybody tries to figure out what just happened. Such a pause also gives the market a chance for some of its different "gears" to line up again.
I often think of the market as moving with a bunch of different gears, and I've found this to be a useful analogy. When I say different gears, I'm essentially talking about the various time-frames where trends are unfolding. For example, the 30 minute gear of the market spins quickly, cycling through its trends and congestion periods rapidly -- often intraday. (Of course the 5 minute gear spins around like a dynamo, making it useful only for daytraders.) One of my personal favorite gears -- the 150 minute chart -- cranks away on nice, chunky moves that last about 3 to 5 days. This idea can also be expanded all the way up to weekly and monthly gears, where the major trends of the market play out.
It's important if you're going to try to understand the markets -- as much as that is possible -- to follow these different market "gears" and time-frames closely. You've got to know whether the gears are meshing together -- resulting in a major price trend -- or whether the gears are working at odds with each other. Generally it's a good idea to place your bets on position trades when all the gears, from the 30 minute on up, are working in sync. Those are the moves that can really pack an energy wallop.
One of the main problems with this current bear market rally is that it has been at odds with the main monthly trend, which continues to be down.
Even though it's been a big move off the bottom, it's still a counter-trend rally in an ongoing bear market. If the SPX moves back up and over 1060 -- the 38.2% retracement level -- then the bear market is seriously weakened, at least in my opinion. But until that hurdle is breached, we've got to respect the down moves as the ones that can align all the market gears into one synchronous trend.
Drilling down now to some of the smaller market gears, the 150 chart shows a routine pause in the new downtrend. (Note: I'm showing the S&P 100 today -- the OEX -- as that is the options trade I'm closely monitoring). Usually these 150 trends play out in about 3 to 5 days, and if you're fortunate enough to hop on board one of these moves early enough, you can usually just hold out for your payoff, even if you have to put up with some flat spots along the way.
One reason why the market paused is that the hourly chart had reached a point where it usually needs to re-charge some energy. The downside from Wednesday carried the 60 minute OEX fractal dimension down to 33.4, which is right in that critical zone between 30 and 35 where trends usually peter out. So this important hourly gear needed to re-charge. But it should just be juicing up for a continuation of the trend down.
I've been getting a lot of questions about whether we're going to go for a Rydex trade. And this question is actually a main reason why I brought up all this gear nonsense today, as the gear I use for Rydex trades hasn't quite clicked into a downtrend yet. These trades are designed to go for the bigger trends that last weeks to months, and this current down-move -- while it has serious potential to be a whopper -- could also just be another pause in the reflationary echo-bubble. So we'll wait to see if more people develop that selling feeling -- and a bigger spark of fear kicks up -- before taking the plunge on end-of-day Rydex positions.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Filled 0.8 points to 2.3% full of negative sentiment.
SHORT-TERM: The decline phase backed off to a neutral phase with a decline bias.
MID-TERM: Progressed 2 points to 6% on the decline side with Confidence unchanged at a bearish 2.
LONG-TERM: Backed up 1 point to 22% on the decline side but a regression of one more point would put this one back into neutral. Confidence remains at a bearish 2.
BOTTOM LINE: If we were looking at a snapshot of the Dashboard from early Thursday we would see the tank much higher than it is here. On an end-of-day basis this tool is still showing extreme complacency. Yet absent some distinct overnight change in character we are about to witness the 3rd consecutive gap-down open. (Look at the SPY chart. It shows gaps much better than the SPX chart.) As this decline phase kicks in the fact that the tank so-far resists filling with negative sentiment is a developing bearish divergence. The tank is very likely to spike higher on Friday. There's still a lot of room for the tank to fill up and for the gauges to move down...for the market to drop some more.
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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